1. ¹Indian School of Business, Hyderabad, India
2. ²School of Business Administration, Loyola University Chicago, Chicago, USA
3. ³College of Management, Georgia Institute of Technology, Atlanta, USA

Correspondence: N Jayaraman, College of Management, Georgia Institute of Technology, 800 West Peachtree Street, Atlanta, GA 30332, USA. Tel: +1 404 894 4389; Fax: +1 404 894 6030; E-mail: narayanan.jayaraman@mgt.gatech.edu

Received 21 July 2006; Revised 26 October 2007; Accepted 26 November 2007; Published online 14 August 2008.

Abstract

Using a sample of over 800 cross-border acquisitions during 1991–2004, we find that, contrary to general perception, cross-border acquisitions perform better in the long run if the acquirer and the target come from countries that are culturally more disparate. We use mainly the Hofstede measure of cultural dimensions to measure cultural distance, but also examine alternative proxies. The positive relationship of performance to cultural distance persists after controlling for several deal-specific variables and country-level fixed effects, and is robust to alternative specifications of long-term performance. Cash and friendly acquisitions tend to perform better in the long run. There is also some evidence of synergies when acquirers are from stronger economies relative to the targets.