Does Target Country Cultural Orientation Influence M&A?

Muhammad Farooq Ahmad (), Saqib Aziz and Michael Dowling
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Saqib Aziz: ESC [Rennes] - ESC Rennes School of Business
Michael Dowling: ESC [Rennes] - ESC Rennes School of Business

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Abstract: We examine whether the cultural orientation of target firms influences the outcomes of international mergers and acquisitions (M&As). Prior research shows that the national culture of the acquiring firm country influences M&As, as well as the distance between the acquiring and target country cultures. Not previously studied from a cultural perspective of M&As has been the target country culture, despite estimates that about 40% of M&As are target-initiated. Our focus is on target firm cultural orientation, including how cultural orientation affects the likelihood of, and returns from, M&As. Our testing applies three cultural orientation factors (results, tradition and people orientation) extracted from a GLOBE cultural framework to a dataset of firm-level M&A data across 39 countries, in 1990–2016. We find that firms from cultures with a results orientation are less likely to become M&A targets and also experience higher cumulative abnormal returns if acquired, while firms from countries with cultures with a tradition orientation or a people orientation are more likely to become targets but experience lower cumulative abnormal returns if acquired. These results are robust to a comprehensive range of robustness tests. Our findings suggest that understanding the cultural orientation of target firms is important to understanding M&A outcomes.

Date: 2022-04
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Published in British Journal of Management, 2022, 33 (2), pp.906-938. ⟨10.1111/1467-8551.12462⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03696970

DOI: 10.1111/1467-8551.12462

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