Cultural difference and China’s cross-border M&As: Language matters

Abstract

This paper studies the effect of language and culture on China’s cross-border mergers and acquisitions during 1997–2017 in 126 host countries. We use the gravity model and adopt common official language, common spoken language and common native language between China and host countries to measure the level of official support, ease of communication and mutual trust, respectively. We find that language proximity boosts China’s cross-border M&As significantly in terms of aggregate value, total number and deal success rate. Cross-sample comparisons show heterogeneous effects of language and culture in developing host countries versus developed host countries as well as manufacturing industries versus service industries.