Blessing or Burden: The Influence of Intercultural Differences on M&A performance

The appeal of inorganic growth through M&A is a risky temptation for business leaders that may result in value destruction for shareholders. A potential element of uncertainty that is inherent in cross-border M&A in particular are intercultural differences between acquirer and target. Focusing on Western European acquisitions, this study demonstrates significantly positive abnormal returns and a significant cultural discount as intercultural underperform non-intercultural deals. Moreover, samples reveal a U-shaped relationship between abnormal returns and cultural distance. High proximity between cultural regions is initially connected to positive abnormal returns, which fall as distance increases before they subsequently rise again for most distant cultures. It is inferred that negative effects on social integration, capability complementarity, monitoring and incentivizing dominate up to a certain degree of cultural differences beyond which they are outweighed by