The effect of cultural distance on cross-border M&A performance by emerging market firms - A multiple measurement analysis

Abstract: This thesis examines how cultural distance affects cross-border M&A performance of emerging market firms. The study adds to the previous literature by using a multi-measurement approach, a broader sample of emerging countries and by comparing the effects to those of developed market firms. Performance is divided into short-term performance, measured as cumulative abnormal return (CAR) and long-term performance, measured as sales growth and change in Return on Sales after the transaction (sales CAGR and change in ROS). Using a sample of transactions conducted by both emerging market firms and developed market firms during the years 1997-2019, this study finds that cultural distance has a negative effect on the long- term cross-border M&A performance of emerging market firms. However, no significant effect is found on the short-term CAR following a cross-border M&A by emerging market firms. Additionally, none of the included performance measures is affected by cultural distance on a statistically significant level following a cross-border M&A by developed market firms. The results hence indicate that the effect of cultural distance is greater for emerging market firms than developed market firms when engaging in cross-border M&As.