Cross-border M&A Performance and its Determinants

The paper investigates the influence of linguistic, ancestral, geographical and cultural distance on the cross-border M&A deal performance among other factors. Method of cumulative abnormal returns is chosen (or event study) and applied to cross sectional data of 192 companies from 44 countries that have completed the deal procedure in the period from 2013 to 2023. Only control purchase M&A deals in which both the acquirer and the target company were publicly traded on the stock market until the formal completion of the M&A procedures are considered. Based on regression analysis of Ordinary Least Squares (OLS) Model the study reveals positive significant impact of genetic distance on the efficiency of the merger and acquisition performance. In the era of globalization, the company’s entry into the foreign market through M&A is associated with a positive reaction of both the local population and the compatriots of the purchasing company, which is confirmed by the market reaction and the growth of the cumulated abnormal return as an indicator of the deal efficiency. This may also be due to the rise in migration in the modern world. However, the study also demonstrates a decrease in transaction effectiveness as the linguistic distance between the countries of origin of the companies’ parties to the transaction increases. The language barrier creates difficulties in adaptation and communication between employees of companies from different countries, which adversely affects the effectiveness of the merger and acquisition procedure. The cultural distance measured in accordance with the Geert Hofstede model of cultural dimensions also has a significant negative impact on cumulated abnormal returns. Preparation of new marketing strategies, services and products for a very different consumer mentality complicates the company's process of entering the foreign market, which worsens in the performance of the deal. The geographical distance between the countries proved to be insignificant in its influence. The transport network development does not create obstacles that significantly affect the mergers and acquisitions performance.