Mergers & Acquisitions and the Acquirer-Target Cultural Differences

34 Pages Posted: 22 Oct 2014 Last revised: 14 Nov 2014

See all articles by Wai Ming Fong

Wai Ming Fong

The Chinese University of Hong Kong (CUHK) - Department of Finance

Kevin C. K. Lam

Hang Seng Management College; The Chinese University of Hong Kong (CUHK) - School of Accountancy

Date Written: November 15, 2014

Abstract

We investigate the impacts of cultural environment on mergers and acquisitions (M&A) in the U.S. To measure the cultural environment of a firm, we use several variables of cultural dimension widely adopted in the literature, such as the percentage of religious adherents and the percentage of Republican supporters in the county where the firm is headquartered. We compute several alternative summary variables to proxy for the differences in cultural environment between firms. We find that the bigger cultural differences between two firms, the less likely that the firms will start an M&A negotiation. However, once an M&A negotiation has started, the cultural differences have a significantly positive impact on the immediate abnormal return of the target and a small positive impact on the long-run abnormal return of the acquirer, but no negative impacts on other negotiation outcomes such as the negotiation success rate.

Keywords: U.S., mergers, acquisitions, initiation of negotiations, cultural environment

JEL Classification: G14, G34, M14, Z1

Suggested Citation

Fong, Wai Ming and Lam, Kevin C. K., Mergers & Acquisitions and the Acquirer-Target Cultural Differences (November 15, 2014). Available at SSRN: https://ssrn.com/abstract=2512607 or http://dx.doi.org/10.2139/ssrn.2512607

Wai Ming Fong (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

Kevin C. K. Lam

Hang Seng Management College ( email )

Hang Shin Link
Siu Lek Yuen
Shatin, Hong Kong
China

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

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