Does Target Country Cultural Orientation Influence M&A?

Forthcoming: British Journal of Management

39 Pages Posted: 4 Feb 2021

See all articles by Muhammad Farooq Ahmad

Muhammad Farooq Ahmad

SKEMA Business School – Université Côte d'Azur

Saqib Aziz

Rennes School of Business

Michael M. Dowling

Dublin City University Business School; ESC Rennes School of Business

Date Written: November 27, 2020

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

Suggested Citation

Ahmad, Muhammad Farooq and Aziz, Saqib and Dowling, Michael M., Does Target Country Cultural Orientation Influence M&A? (November 27, 2020). Forthcoming: British Journal of Management, Available at SSRN: https://ssrn.com/abstract=3738727

Muhammad Farooq Ahmad (Contact Author)

SKEMA Business School – Université Côte d'Azur ( email )

Campus de Lille, Avenue Willy Brandt,
Lille, 59777
France

HOME PAGE: http://sites.google.com/site/mfarooqahmad85

Saqib Aziz

Rennes School of Business ( email )

Rue Robert d'arbrissel, 2
Rennes, 35065
France

Michael M. Dowling

Dublin City University Business School ( email )

Dublin 9
Ireland

ESC Rennes School of Business ( email )

Rue Robert d'arbrissel, 2
Rennes, 35000
France

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