Mergers & Acquisitions and the Acquirer-Target Cultural Differences

We investigate the impacts of cultural environment on mergers and acquisitions (M&A) in the U.S. To measure the cultural environment of a firm, we use several variables of cultural dimension widely adopted in the literature, such as the percentage of religious adherents and the percentage of Republican supporters in the county where the firm is headquartered. We compute several alternative summary variables to proxy for the differences in cultural environment between firms. We find that the bigger cultural differences between two firms, the less likely that the firms will start an M&A negotiation. However, once an M&A negotiation has started, the cultural differences have a significantly positive impact on the immediate abnormal return of the target and a small positive impact on the long-run abnormal return of the acquirer, but no negative impacts on other negotiation outcomes such as the negotiation success rate.