Geography and Acquirer Returns

Abstract

We examine the impact of geographical proximity on the acquisition decisions of US public firms over the period 1990-2003. Transactions where the acquirer and target firms are located within 100km of each other are classified as local transactions. We find that acquirer returns in local transactions are more than twice that in non-local transactions. The higher returns to local acquirers are, at least partially, due to information advantages arising from geographical proximity. These information advantages facilitate acquisition of targets that on average create higher overall return. However, bidders use their information advantages to earn a higher share of the surplus created.