The Asymmetry of the Cultural Encounter: The Impact of National Culture Differences on Cross-Border Mergers & Acquisitions Performance

Prior studies suggest that national “cultural distance” will adversely affect the return on the acquisition of foreign firms. However, they implicitly assume that this impact will be symmetric; in other words, that cultural differences will have the same impact regardless of who is the bidder and who is the target in a transaction. In this study, we test for and confirm asymmetry of impact. While we find an overall negative impact for cultural differences on the return to the shareholders of the target firms, we also find that foreign targets of US bidders are more adversely affected by differences in national culture than comparable US targets of foreign bidders. The findings also show that foreign targets of US bidders are more likely to suffer low returns when based in countries whose culture, unlike that of the US, is high on uncertainty avoidance and collectivism.