A Multi-Level Approach to the Completion of Cross-Border M&As after Announcements

Abstract

The completion vs. abandonment of an acquisition deal after announcement is an important issue for both the target and the acquiring firms, as it can cause not only short-term monetary cost but also severe problems related to reputation and business. However, the dynamics of pre-acquisition period have not actively uncovered yet, especially in the cross-border context. Building upon managerial perspectives on risky decision making including prospect theory, this paper aims to identify macro- and micro-level factors that affect the predictability of expected return and the perceived risk, which leads to ultimate completion or abandonment after public announcement of the deal. We empirically examine 3,373 cross-border M&As announced in 1985-2008. Our results show that a cross-border M&A is more likely to be completed when the target firm is from developed, rather than developing, economies. The greater the discrepancies in the level of economic development between the target’s and the acquirer’s countries, the more likely the deal is eventually complete. We also find that cross-border M&As between companies in related industries are more likely to be completed. Furthermore, deals with economic or strategic, rather than financial, motivations are more likely to be completed.