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

We find that acquiring firms on an average earn significant positive abnormal returns.
The three-day CAR ([-1, 1]) is 0.71% and is significant at the 1% level. However, the results
for other longer announcement windows [(-40, 5), (-40 to +1), (-1 to +5)]) are not statistically
significant. Next, we try to explain the cross-sectional variation in the short-term returns using
deal-specific variables, country-level economic variables, and the measures of cultural
distance.
We present seven models in Table 7 as in the previous tables for the long-run returns.
We replicate Table 5, including year and target country fixed-effects, but use the short-term
cumulative abnormal returns as the dependent variable instead of BHAR. Interestingly
enough, the measures of cultural difference seem to have the opposite impact on the shortterm
announcement returns than in the long-term return., The significance of both Hofstede
distance as well as language dummy suggest that markets actually value “culturally closer”
cross-border M&As higher, only to be proven wrong in time.
6. CONCLUSIONS
We investigate the effect of cultural distance on long-term (and short-term) performance of
cross-border M&A. Our results show that acquisitions perform better in the long-run if the
acquirer and the target come from countries that are culturally more disparate. This is, in fact,
opposite to the market reaction in the “announcement effect”.
Among the determinants of long-term performance of acquirers’ stock returns,
cultural differences emerge as an economically significant beneficial factor. The positive
impact of cultural differences is not captured in the announcement period returns. The impact
of culture remains after controlling for several deal-specific, economic and corporate
governance variables, country fixed effects and is robust to alternative specifications and
horizons of long-term performance. Among deal characteristics, friendly deals and cash
acquisitions do better in the long-run. We also find some evidence of synergies that can be
derived when acquiring firms from strong economic systems acquire targets in systems with
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