Cultural Distance as a Predictor of Acquiror Abnormal Return in Cross-cultural Acquisitions

Abstract

The purpose of this quantitative correlational-predictive study was to quantify the extent to which national cultural distance (NCD) predicts a U.S. acquiror’s stock-price return in the first year after a foreign merger or acquisition (M&A). The theoretical framework of the research included a qualitative model of the relationship between NCD and M&A success, moderated by post-acquisition integration (PAI), along with the seminal theories of NCD, PAI, and the efficient market hypothesis. Two research questions asked if, and to what extent, the dimensions of NCD predict an acquiror’s buy-and-hold abnormal return (BHAR) in the first year after cross-cultural M&A collectively (RQ1) and individually (RQ2). A stratified random sample of U.S. companies acquiring foreign targets between 2012 and 2021 yielded 200 cases with 37 target nations. Multiple linear regression (MLR) analysis of the predictive relationship between NCD and first-year acquiror BHAR for RQ1 showed the combined dimensions effectively predict first-year acquiror BHAR, F(4, 195) = 5.375, p < .001, R ² = .099, R ² adj = .081. For RQ2, the NCD dimensions of individualism (b1 = .595, t = 3.465, p < .001), masculinity (b1 = .430, t = 2.975, p = .003), and uncertainty avoidance (b1 = -.336, t = -2.548. p = .012), were significant predictors of first year acquiror BHAR, while power distance was not (b1 = .045, t = .258, p = 797). The study contributes to the body of knowledge on the effect of cultural distance on acquiror BHAR in the intermediate period between the announcement date and years later when PAI is completed. Future research is recommended to understand the mechanisms by which these dimensions of cultural distance accelerate or retard the PAI process.