Cross-Border M&A and the Impact of Cultural Differences the Latin American Case

Abstract

Over the last decade, the Latin American Cross-Border M&A activity experienced a significant increase in terms of volume, value, and complexity. Between 2002 and 2011, 1483 M&A announcements involving Latin American bidders were found in this study. From this sample 344 were targeting companies in a foreign country. With the purpose of measuring to what extent CB-M&A can be a catalyst of value creation or destruction for the bidder in the short-term, the event study methodology was employed in a sample of 47 observations. I found that on average, the market reaction is positive after the announcement, leading to short-term value creation for the Latin American acquirers. Regarding the allocation of investments in terms of geographies, the outcome shows that bidders tend to favor countries with similar cultural values and geographically close. The Hofstede’s cultural dimensions along with additional factors such as language, legal origins, and religion were analyzed in order to evaluate to what degree cultural differences affect cross-border acquisitions. However much the results are not statistically significant, it appears that cultural differences tend to have a negative effect on the bidder’s short-term performance.