Bridging Institutional Distance: The Role of M&A Advisors in Cross-border Acquisitions

Tao Han and Addis Gedefaw Birhanu ()
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Tao Han: Shanghai Jiao Tong University [Shanghai]
Addis Gedefaw Birhanu: EM - EMLyon Business School

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Abstract: In this chapter, the authors draw insights from the literature on institutional distance and examine whether firms engaging in cross-border acquisitions overcome the liability of foreignness by using external advisors. Specifically, the authors argue that acquiring and target firms may alleviate heightened information asymmetries and transaction costs by leveraging the information-production and uncertainty-reduction roles of M&A advisors. Using a global sample of cross-border M&As from 2001 to 2020, the results suggest that institutional distance triggers both acquirers and targets to use M&A advisors. Among the four types of institutional distance the authors examined, cultural distance – and to a lesser extent administrative distance – greatly contributes to the use of various types of advisors in cross-border deals. Interestingly, although both parties in the transaction rely on advisors to overcome distance barriers, acquiring firms appear to hire advisors more often than target firms.

Keywords: Cross-border mergers and acquisitions; liability of foreignness; M&A advisors; institutional distance; cultural distance; administrative distance (search for similar items in EconPapers)
Date: 2022-09-14
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Published in Advances in Mergers and Acquisitions, Emerald Publishing Limited, pp.63-83, 2022, Advances in Mergers and Acquisitions, ⟨10.1108/S1479-361X20220000021005⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04041951

DOI: 10.1108/S1479-361X20220000021005

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