Social Trust Distance in Mergers and Acquisitions
44 Pages Posted: 3 Sep 2017 Last revised: 18 Sep 2019
Date Written: September 16, 2019
This paper studies the role of regional cultural differences in M\&A transactions in the U.S. We construct a county-level measure of cultural trust based on the World Values Survey data and find that a larger social trust distance between two companies reduces the likelihood of them combining via an M\&A transaction. Conditional on the deal being announced, a larger social trust distance between the acquirer and the target results in lower completion rates and longer completion times, indicating a higher complexity in deal execution. However, we also find that a larger social trust distance is associated with higher gains from mergers, as measured by both acquirer and combined announcement returns as well as medium-term buy-and-hold abnormal returns. The result suggests that for these announced deals, the synergy potential is high enough to offset the costs induced by the large cultural distance.
Keywords: mergers and acquisitions, cultural difference, trust, social capital, synergies
JEL Classification: A13, D71, G34, M14, Z1
Suggested Citation: Suggested Citation