Impact of timing and cultural distance on acquiring firms’ performance in cross-border mergers and acquisitions - case: emerging market acquirers

Abstract

The recent surge in global mergers and acquisitions (M&A) has seen the rise of acquirers from emerging market countries. Therefore, this paper aims at shedding some lights on how such cross-border M&A influence those acquiring firms from emerging market countries using market-based approach as well as how the timing of the transaction (early/late-mover effect) and cultural distance contribute toward the impact.

While some existing papers e.g. Aybar & Ficici (2009) and Bertrand & Betschinger (2012) find that the bidders from emerging market countries suffer negative abnormal returns surrounding the event, other papers (Gubbi et al., 2010) support the opposite view. With respect to cultural distance, alt-hough a majority of existing literature argues that high cultural barrier creates distrust, conflicts and confusions, which hinders the integration post-merger, others see differences in culture as an oppor-tunity to create changes and fuel innovations. Regarding the role of transaction timing, there is very limited research investigating this issue. However, Carow et al. (2004) conclude that merely being an early mover cannot guarantee success for the acquiring firms.

My sample consists of 1,023 M&A transactions made by companies from emerging market coun-tries as defined by the MSCI market classification within the period from 1990 to 2015. The results show that acquiring firms from emerging market countries which engage in cross-border M&A suf-fer negative abnormal returns on and surrounding the announcement day. Robustness tests using a different method to calculate abnormal returns as well as using accounting-based approach also confirm the findings. With respects to transaction timing, the results show that, between a pair of countries, companies who “wait and learn” i.e. late movers are favoured by the market compared to those who make the first acquisitions within a merger wave. Moreover, the event-study also finds that cultural distance (based on Hofstede four cultural dimensions) has statistically significant and negative impact on the abnormal returns of those acquiring firms. However, the logistic regressions fail to record this effect with all the coefficients remain statistically insignificant but the results also suggest that each cultural dimension may have different influences on the firms’ abnormal returns. Although the paper only examines the short-term impact using stock-based approach, it can still act as guidelines for managers for emerging markets’ firms, who intend to acquire abroad, on the tim-ing of the acquisitions as well as selecting the target’s country.