Does corruption distance affect cross-border acquisitions? Different tales from developed and emerging markets

Using a large sample of cross-border deals, we find an inverted U-shaped relationship between corruption distance and cross-border acquisition (CBA) volume. CBAs involving higher corruption distance show negative post-acquisition performance. However, multinational enterprises (MNEs) with larger equity stakes deliver superior gains. We find that the ownership strategy varies with levels of corruption distance. MNEs mitigate adverse selection and moral hazard problems by acquiring targets from a related industry and targets with a foothold. We demonstrate that CBA activity and ownership strategy vary between developed and emerging economies and both 'level' and 'direction' of corruption distance are important in its effect on CBAs.