Honors College Theses

Date

2021

Major

Management (BBA)

Document Type and Release Option

Thesis (open access)

Faculty Mentor

Katia de Melo Galdino

Abstract

Country-level factors play an important role in the success or failure of cross-border acquisitions (i.e., acquisitions where the acquiring and target firms are in two different countries). If we are to understand and improve the success rates of these acquisitions, we must explore this issue in more depth. As globalization continues to emerge around the world, cross-border acquisitions have become a common way to enter a new foreign market. There is limited research available so far for these acquisitions on the country-level. Currently, cross-border acquisitions have failure rates of up to 70%. We analyze acquisition premium and use three dimensions of distance - administrative, economic, and financial - to understand how these country-level factors affect the performance of cross-border acquisitions. We collected data on acquisitions announced between 2011 and 2014 from the SDC database. We have 108 deals in our final sample used to conduct the statistical analyses. We found that while premium is negatively related to acquisition performance, this relationship is contingent on administrative and financial distances.

Thesis Summary

As globalization continues to emerge around the world, cross-border acquisitions (CBAs) have become a common way to enter a new foreign market. There is limited research available so far for these acquisitions at a country-level, and currently CBAs have failure rates of over 70 percent (Christensen, Alton, Rising, & Waldeck, 2011). Between 1990 and 2008, the number and value of CBAs increased by a factor of about ten and cross-border deals now account for the vast majority of total global foreign direct investment (UNCTAD, 2008). If we are to understand and improve the success rates of these acquisitions, we must explore these factors in more depth. In this research paper, we explore the relationship between acquisition premium, or the percentage difference between the trading price of the target’s stock before the announcement of the acquisition and price per share paid by the acquiring firm’ (Haunschild, 1994), and different distance factors (i.e., the degree of similarity between the acquirer and target countries), namely: administrative, economic, and financial distances, that should affect the success of CBAs.

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