How Does Cultural Difference Affect Cross-Border Mergers And Acquisitions?

The purpose of this paper is to explain how cultural difference affects cross-border mergers and acquisitions.We used a sample of 147 different cross-border M&A transactions conducted in the year 2015.For such transactions,the acquiring companies are all based in the United States while the target companies come from 18 different countries.Abnormal stock market returns are the variables used to measure the financial performance of the acquiring company after the M&A transaction.To measure culture difference,we used a variable that accounts for all six of the Hofstede culture distance dimensions.This paper proves there is,in fact,a demonstrable positive relationship between the cultural difference of both companies engaged in a crossborder M&A transaction and the financial performance of the acquiring company after the transaction.There is still no consensus regarding the effect culture difference has on M&A’s performance,much literature argues that cultural difference has a negative impact.The explanation to this apparent contradiction is that the problem is not in culture distance per se but in the way companies address integration.Additionally,this paper provides some recommendations for acquiring companies on how to efficiently bring forward integration in order to reap the desired synergies.