Language Similarity and M&A Transactions

Abstract

We investigate how language similarity between acquirers and targets affects post-M&A performance using a large sample of M&A transactions in China. We hypothesize and find that acquirers achieve higher post-M&A operating performance when they acquire targets that share the same native languages. We provide evidence that language similarity enhances post-M&A performance via the communication channel. Additionally, we show that the impact of language similarity is more pronounced when acquirers are not controlled by government agencies and when they are not related parties of targets. This study indicates an important role of native language similarity on post-M&A performance.

Keywords: language similarity, M&A, information asymmetry, integration efficiency

JEL Classification: G14, G34, Z13