Social trust distance in mergers and acquisitions

Tse-Chun Lin and Vesa Pursiainen

Journal of Banking & Finance, 2023, vol. 149, issue C

Abstract: We study the role of regional cultural differences in M&A transactions in the U.S. A larger social trust distance between two companies reduces the likelihood of them combining via an M&A transaction and results in lower completion rates and longer completion times, indicating higher complexity in deal execution. However, a larger social trust distance is also associated with higher gains from mergers, as measured by acquirer and combined announcement returns and medium-term buy-and-hold abnormal returns. This suggests that for these announced deals, the synergy potential is high enough to offset the costs induced by the large cultural distance.

Keywords: Mergers and acquisitions; Cultural difference; Trust; Social capital; Synergies (search for similar items in EconPapers)
JEL-codes: A13 D71 G34 M14 Z1 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:149:y:2023:i:c:s0378426623000031

DOI: 10.1016/j.jbankfin.2023.106759

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