The Perception and Impact of Cultural Differences in Cross-Border Acquisitions - An analysis of how cultural differences affect the post-acquisition performance of acquiring companies in cross-border acquisitions

Abstract

This thesis examines the relationship between cultural differences and the post-acquisition performance of cross-border acquisitions. Cross-border transactions have increased substantially in the last decades which has led to an increase in studies interested in finding key drivers of performance in these transactions. The cultural difference between the acquirer and acquiree is one of the drivers which has attracted a lot of attention, however the findings on the subject are contradicting. Advantages such as diversification of resources and increased market power and disadvantages such as increased costs of integration have been brought to attention, but the results from previous studies on how these drivers and barriers impact the performance are inconclusive. This thesis uses a sample of 128 cross-border acquisitions between 2010 and 2020 within the IT industry where the acquiring company is located in the United States. This thesis uses Hofstede´s framework for calculating cultural differences and multiple event windows for short- and long-term abnormal returns: Cumulative Abnormal Return (CAR) and Buy-and-Hold Abnormal return (BHAR). Furthermore, several control variables were incorporated. The findings display a negative long-term relationship between increased cultural differences and performance. Furthermore, the control variables; earnout clause, corporate divestiture, and cash payments display a significant positive impact on abnormal returns when using long-term event windows. Finally, relative buying size returns significant short-term results indicating that companies acquiring larger companies relative to themselves experience increased abnormal returns. The findings of this thesis contribute knowledge regarding the impact cultural differences have on shareholder wealth and further illustrate the complexity of identifying certain key drivers of transaction performance. We believe that this thesis can provide insights for both professionals within the M&A field as well as act as a basis for scholars interested in further work within the area.