Cross-border M&A Performance Involving Emerging Markets: Impact of Cultural and Institutional Distance

Abstract: The number of cross-border Mergers and Acquisitions involving an emerging economy as either acquirer or target is steadily increasing. Cultural and institutional distance thereby are important issues for cross-border M&A value creation, since countries involved in the deal can be very different in terms of their cultural embedding (norms, values, beliefs) and/or their institutional domain (formal and legal aspects of governments). Empirical evidence about the influence of cultural and/or institutional distance on cross-border M&A performance is mixed. This paper reflects the effect of cultural- and institutional distance on value creation of cross- border M&A deals involving emerging economies. Using a sample of 117 deals consisting of cross-border M&As involving emerging countries as targets or as acquirers, we applied the event study. We find that on average these deals destroy value for the acquirer. Moreover, we find that cultural and institutional distance destroy value for the acquiring firm from emerging markets, and if a company from an emerging market is a target, the effect of cultural and institutional distance is less and not statistically different from zero.