Lost in Translation? The Effect of Cultural Values on Mergers Around the World

Abstract

We find strong evidence that three key dimensions of national culture (trust, hierarchy, and individualism) affect merger volume and synergy gains. The volume of cross-border mergers is lower when countries are more culturally distant. In addition, greater cultural distance in trust and individualism leads to lower combined announcement returns. These findings are robust to year and country-level fixed effects, time-varying country-pair and deal-level variables, as well as instrumental variables for cultural differences based on genetic and somatic differences. The results are the first large-scale evidence that cultural differences have substantial impacts on multiple aspects of cross-border mergers.

Keywords: Mergers & Acquisitions, Culture, Trust, Hierarchy, Individualism, Egalitarianism, International, Cross-border

JEL Classification: G34, M14, Z1