Ceo Language And Corporate Mergers And Acquisitions

Language is essential for the economic development.Yet,little is known about the origins of language effect and few people have done researches on it.Using unique data from China,our paper examines the relation between bidder returns and the linguistic distance between the acquirers CEO and targets,from which we can study the effect of language on M&A events.We identify acquisitions made by listed companies between 2000 and 2012 and find that the greater the linguistic distance is,the less the shareholder value will be.Further analysis shows that the effect only works in following conditions,when the acquirers are non-state-owned enterprises,when there are diversified M&As,when the acquirers CEO has no political background,has younger age,lower education,no multi-industry experience and when the formal institutions are well-established(after the acquirers have finished the reform of non-tradable shares).Our studies provide evidence that informal institution(language)has a significant effect on economic issues like company mergers and acquisitions.