Does Target Country Cultural Orientation Influence M&A?

Abstract

We examine whether the cultural orientation of target firms influences outcomes of international mergers and acquisitions (M&A). Prior research shows that the national culture of the acquiring firm country influences M&A, as well the distance between the acquiring and target country cultures. Not previously studied from a cultural perspective of M&A has been the target country culture, despite estimates that about 40 percent of M&A is target-initiated. Our focus is on target firm cultural orientation, including how cultural orientation affects the likelihood of, and returns from, M&A. Our testing applies three cultural orientation factors (results, tradition, people orientation) extracted from a GLOBE cultural framework to a dataset of firm-level M&A data across 39 countries, 1990-2016. We find that firms from cultures with a results orientation are less likely to become M&A targets and also experience higher cumulative abnormal returns if acquired. While firms from countries with cultures with a tradition orientation or a people orientation are more likely to become targets but experience lower cumulative abnormal returns if acquired. These results are robust to a comprehensive range of robustness tests. Our findings suggest that understanding the cultural orientation of target firms is important to understanding M&A outcomes.

Keywords: Mergers, Acquisitions, Culture

JEL Classification: G34, M14, Z1