Geography in the Making of Culture and Corporate Strategy: A Longitudinal Study of M&As

Abstract

I argue that a region’s geographical characteristics shape the level of independence vis-à-vis interdependence of its culture, which in turn affects M&As of firms therein. Specifically, terrain ruggedness—i.e., amount of elevation difference within a region due to mountains—leads to a more independent culture due to significant coordination and cooperation costs, difficulty of transportation and economic exchange, and potential armed tensions. A temperate climate—i.e., ample precipitation and a moderate temperature—allows residents to obtain sufficient agricultural yield and makes unifying with others to combat the harsh environment unnecessary, thus breeding a culture favoring independence. Cultures with a low (high) level of independence (interdependence) set expectations for connectedness of assets, emphasize value creation through synergy, advocate corporate hierarchy, and downplay integration problems. Thus, more interdependent (less independent) cultures encourage firms to acquire and prompt investors to react more favorably to M&As. I find supportive evidence for my hypotheses with two samples covering diverse geographies, cultures, and publicly traded firms of subnational regions worldwide. A study of firms in China and the United Kingdom based on natural language processing provides further evidence. My study (1) advances a geographical origin of culture and unpacks cultural formation at the more nuanced, subnational level, (2) contributes to the institution-based view by highlighting the cultural dimension in understanding firms’ M&A decision and investors’ reaction, and (3) finally outlines a geography-based view of firm.