Naked M&A Transactions: How the Lack of Local Expertise in Cross‐Border Deals Can Negatively Affect Acquirer Performance – and How Informed Institutional Investors Can Mitigate this Effect

38 Pages Posted: 11 Apr 2014

See all articles by Anna I. Faelten

Anna I. Faelten

City University London - Sir John Cass Business School

Miles B. Gietzmann

Bocconi University - Department of Accounting

Valeriya Vitkova

City University London - Sir John Cass Business School

Date Written: April/May 2014

Abstract

This paper tests how informed investors with local expertise can affect cross‐border deal success using a comprehensive dataset of corporate acquirers’ share registers. We posit that deals in which long‐term investors have a high level of expertise in the target firm's region are more likely to perform better than if the deal is ‘naked’, i.e., when such regional expertise amongst the investors is low. We show that the strength of this effect depends upon an index of country‐level M&A maturity which measures the relative divergence between acquirer and target countries. Specifically, we investigate whether acquirers investing in countries with low M&A maturity gain greater benefit from investors with regional expertise. We present evidence which confirms the hypothesis that acquirers in cross‐border corporate transactions are more likely to be successful if the acquirer's investors have a higher level of expertise in the target region, and that this effect is strongest when the maturity for corporate transactions of the target country is low. This provides a specific setting which is consistent with earlier theoretical work that argues in general that information flows should not just be from firms to capital markets but also in the opposite direction, and that this flow of information is particularly important whenever information is dispersed.

Keywords: cross‐border M&A, institutional investors, investor relations, financial geography, country development, M&A maturity

Suggested Citation

Faelten, Anna I. and Gietzmann, Miles B. and Vitkova, Valeriya, Naked M&A Transactions: How the Lack of Local Expertise in Cross‐Border Deals Can Negatively Affect Acquirer Performance – and How Informed Institutional Investors Can Mitigate this Effect (April/May 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 3-4, pp. 469-506, 2014. Available at SSRN: https://ssrn.com/abstract=2423586 or http://dx.doi.org/10.1111/jbfa.12049

Anna I. Faelten

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Miles B. Gietzmann

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Valeriya Vitkova

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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