Added cultural distance and ownership in cross-border acquisitions

Abstract

Purpose

As multinational companies enter different countries, the extent of cultural unfamiliarity they face depends on their most recent entry. We examine this pattern of added cultural distance between a newly entered target country and the closest previous one and its effect on ownership decisions in each cross-border acquisition (CBA). We also examine the combined effect of added cultural distance and time between successive acquisitions on such decisions.

Design/methodology/approach

The sample came from the Thomson Financial Securities Data Corporation (SDC) Platinum database, which spans different source and target countries for a 25-year period (1980–2014). We collected firm- (acquirer and target), industry-, country-, and transaction-level variables from SDC. After merging information from the different sources, the final sample comprised 10,423 CBA observations from 138 target countries.

Findings

Our findings reveal that the ownership share decision is affected negatively by added cultural distance but positively by the time between two successive acquisitions. In addition, prior ownership and geographic distance moderate the relationship between added cultural distance and ownership in CBAs.

Practical implications

Our findings suggest that MNCs' managers who consider CBAs need to carefully examine closest previous target information and CBA experience, rather than focusing on direct cultural distance between the focal firm and target firm. Additionally, they should also consider the relevance of key contingency factors.

Originality/value

We disentangle the effects of added cultural distance on CBA ownership decisions and explore the boundary conditions of this relationship.

Citation

Kim, H.G., Gaur, A.S. and Mukherjee, D. (2020), "Added cultural distance and ownership in cross-border acquisitions", Cross Cultural & Strategic Management, Vol. 27 No. 3, pp. 487-510. https://doi.org/10.1108/CCSM-01-2020-0003