Does target geographical complexity impact acquisition performance

Using a sample of 738 U.S. M&A deals, we examine whether a target's geographical complexity affects acquisition performance. Our results show that target geographical complexity is associated with (i) lower acquirer abnormal returns, and (ii) higher acquisition premiums. These results imply that acquiring firms overestimate their synergistic gains associated with more geographically diversified targets and acquirer shareholders are less enthusiastic about such deals. Further, we find that despite unfavorable market reactions, acquiring firm managers are not likely to abandon geographically complex target deals. Our main results remain qualitatively similar after addressing plausible endogeneity bias.