Mars-Venus Marriages: Culture and Cross-Border M&A

61 Pages Posted: 13 Dec 2005

See all articles by Rajesh Chakrabarti

Rajesh Chakrabarti

O. P. Jindal Global University

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Swasti Gupta-Mukherjee

Loyola University Chicago - Department of Finance

Date Written: November 21, 2005

Abstract

We explore factors affecting the long-term performance of cross-border M&A, with a special focus on cultural distance between the countries of the two firms. Using a sample of over 400 cross-border acquisitions in the period 1991-2000, we find that contrary to general perception, cross-border acquisitions perform better in the long-run if the acquirer and the target come from countries that are culturally more disparate. We use the Hofstede measure of cultural dimensions to define cultural distance and also examine alternative measures such as language, religion and legal origin to capture cultural differences. The positive effect of cultural distance persists after controlling for several deal-specific variables and country-level fixed effects, and is robust to alternative specifications and horizons of long-term performance. Divergence (convergence) in degree of individualism and hierarchy in power structures (attitudes towards uncertainty)beneficially impacts post-acquisition performance. Among deal characteristics, cash and friendly acquisitions tend to perform better in the long-run. There is also some evidence of synergies when acquirers from stronger corporate governance regimes acquire targets from weaker regimes.

Keywords: cross-border, mergers, acquisitions, culture

JEL Classification: G34

Suggested Citation

Chakrabarti, Rajesh and Jayaraman, Narayanan and Gupta-Mukherjee, Swasti, Mars-Venus Marriages: Culture and Cross-Border M&A (November 21, 2005). Available at SSRN: https://ssrn.com/abstract=869307 or http://dx.doi.org/10.2139/ssrn.869307

Rajesh Chakrabarti (Contact Author)

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

Swasti Gupta-Mukherjee

Loyola University Chicago - Department of Finance ( email )

820 North Michigan Avenue
Chicago, IL 60611
United States

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