Are Cross-Border Acquisitions Different from Domestic Acquisitions? Evidence on Stock and Operating Performance for U.S. Acquirers

Abstract

We provide empirical evidence on how cross-border acquisitions from the perspective of an U.S. acquirer differ from domestic transactions, based on stock and operating performance measures. The distinction between domestic and cross-border acquisitions is a function of the change in market integration, which shifts the balance between the relative costs and benefits of cross-border versus domestic acquisitions. Furthermore, recent evidence on the costs of global diversification suggests another reason for a distinction between cross-border and domestic acquisitions. For a sample of 4,430 acquisitions between 1985 and 1995 and controlling for various factors we find that U.S. acquirers experience significantly lower stock and operating performance for cross-border than for domestic transactions. Stock returns are negatively associated with an increase in both global and industrial diversification. Cross-border takeover activity has increased during the past decade and the observed difference in bidder gains is more pronounced for the latter half of the sample period. With the exception of the U.K., bidder returns are negatively related to the target country's degree of economic restrictiveness. Lower bidder gains for cross-border transactions are consistent with the acquirer's inability to correctly value or capture synergies in cross-border takeovers.