Cultural distance in cross-border M&A performance of emerging market MNEs

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This study aims to provide additional insights into the relationship between cultural distance and the performance of acquisitions. It has been a debated topic throughout international business literature, reporting opposing results. However, a majority of the existing body of research is limited to data from firms headquartered in developed countries. This paper tries to expand on this debate by using data from emerging market firms conducting cross-border acquisitions, specifically Chinese firms. The expectation is that for these emerging market firms, integration is less of a priority and the benefits from acquiring a culturally distant firm are more beneficial than the costs. By gathering data from 429 Chinese cross-border acquisitions from 2000 until 2019, an OLS regression analysis could be conducted. The measurement of firm performance is created by measuring the cumulative abnormal returns of the firm's stock value during the acquisition announcement through an event study. The results are opposite to what was expected, namely a negative relationship between cultural distance and firm performance during an acquisition. This result is not generalizable to other emerging market firms due to additional robustness tests with firms from other emerging markets producing differing results.
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