Social Trust Distance in Mergers and Acquisitions

44 Pages Posted: 3 Sep 2017 Last revised: 18 Sep 2019

See all articles by Tse-Chun Lin

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Vesa Pursiainen

The University of Hong Kong - Faculty of Business and Economics; University of Zurich - Department of Banking and Finance

Date Written: September 16, 2019

Abstract

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

Lin, Tse-Chun and Pursiainen, Vesa, Social Trust Distance in Mergers and Acquisitions (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=3030566 or http://dx.doi.org/10.2139/ssrn.3030566

Tse-Chun Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Vesa Pursiainen

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong
Hong Kong

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Z├╝rich, 8032
Switzerland

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