Do Differences in Societal Trust Let the Cross-Border Mergers Die?

Abstract

The paper further contributes to our understanding about the role of societal trust in influencing mergers outcome. Using a large sample of cross-border mergers across 56 countries between 1985 and 2014, we show that, conditional on announcement of cross-border mergers, larger differences of societal trust between acquirer and target countries increase the withdrawn mergers intensity, at country, country-industry, and deal level. The results hold after controlling for deal characteristics, acquirer, and target country’s time-varying characteristics, saturation of dense set of fixed effects, are robust to endogeneity concerns, and are not driven by omitted variable bias. These differences lead to significantly lower synergy gains in withdrawn cross border mergers and the effect is 7 times higher relative to completed mergers which validates our priors. Moreover, we unfold that similarity based on level of trust between countries as generally perceived in the literature has heterogeneous effects on the observed relationship. Mergers between high trusting countries are less likely to be withdrawn while the reverse is not true.