Cultural distance and value creation of cross-border M&A: The moderating role of acquirer characteristics

This paper examines the effects of culture and the interaction between cultural distance and salient acquirer characteristics on value creation of acquiring firms based on a sample of 209 firms over the period of 1998-2012. The findings indicate that Chinese acquirer experience wealth gains ranging from 0.45%-1.49% over a 10 day event window. We find cultural distance to exert a negative influence on value creation of acquirers in the short-and long-term. However, the negative returns are significant only in the short-term but not in the long-term. Further evidence shows that acquirer large size, prior experience and high Tobin's q positively moderate the link between cultural distance and value creation. The results suggest that the effect of culture distance is conditioned by the acquirer size, prior experience and Tobin's q implying that acquirer resources and managerial capabilities are important in dealing with and overcoming cross-border mergers and acquisitions (CBM&A) cultural challenges.