Are the extent and effect of psychic distance perceptions symmetrical in cross-border M&As? Evidence from a two-country study

Abstract

The concept of psychic distance has several entrenched assumptions that have not been put to sufficient systematic scrutiny. We address this gap by investigating the assumptions of symmetry (i.e., whether psychic distance from Country A to Country B is the same as that from Country B to Country A) and discordance (i.e., whether differences in psychic distance between two countries always lead to lack of fit) of psychic distance in cross-border mergers and acquisitions. We propose a new framework, which differentiates between the extent (i.e., the degree to which two countries are perceived to be similar/different) and effects (i.e., the degree to which distance perceptions create favorable or unfavorable attitudes and responses) of psychic distance perceptions. We argue that relative status positions affect extent and effects of psychic distance. To test our predictions, we collected data through policy-capturing studies in Sweden and China. Our findings reveal that both the extent and the effects of psychic distance perceptions are asymmetric. We also found that psychic distance perceptions create unfavorable (favorable) attitudes among Swedish (Chinese) respondents toward Chinese (Swedish) acquirers. Our follow-up examination confirms that relative status positions are a key driver of these results.