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The effect of institutional distance on cross-border merger and acquisition time to completion: an empirical analysis of European Union deals
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Authors
Abstract(s)
Cross-border merger and acquisitions (CBM&As) have extensively been used as a
favorite entry mode in foreign markets, rapidly providing resources, competencies and
local intelligence without risk of facing the liability of foreignness, or the burden of
starting a greenfield investment. Studies indicate that greater institutional distance
increases the costs of doing business in a foreign country, because it is associated with
greater uncertainty and non-familiarity with the local environment. Besides that, prolonged
duration of the M&A process has negative consequences for target and acquirer firms and
bear significant costs for both parties. However, until so far, the studies regarding the
effect of institutional distances on time to completion of a CBM&A deal are scarce. My
theoretical model speculates on the effect of institutional distances (Political, Economic,
Administrative and Cultural) in CBM&As time to completion. I further propose that
European Union membership, of both target and acquirer countries, moderates the effect of
institutional distances on CBM&As time to completion. The hypotheses are tested using a
sample of 2,110 CBM&A deals that occurred during 2011 in European Union. On one
hand, the results suggest that Political and Cultural distance have a positive effect on the
time hiatus between announcement and completion of a CBM&A deal. On the other hand,
the results suggest that European Union membership does moderate the effect of Economic and Administrative distance in CBM&A time to completion.
Description
Keywords
Cross-border mergers and acquisitions Institutional theory Time to completion European Union