Shareholder wealth effects of cultural diversity among blockholders: Evidence from cross‐border acquisitions by U.S.‐listed companies

Abstract

AbstractResearch question/issueThis paper studies whether and how diversity among blockholders in their cultural preferences may affect short‐term shareholder wealth. Blockholders often hold diverse objectives, leading to principal–principal (PP) conflicts in cross‐border acquisitions (CBAs). The literature, however, is unclear on whether they have diverse cultural preferences when it comes to the location choice in CBAs and, if so, how such diversity affects short‐term shareholder wealth surrounding the announcement of a CBA. Integrating agency and resource dependence perspectives, this paper argues that such diversity has an inverted U‐shaped relationship with shareholder wealth.Research findings/insightsThe theory is tested using a sample of 2,571 nonfinancial CBAs made by U.S.‐listed companies between 2002 and 2014. Results suggest an inverted U‐shaped relationship between diversity in host‐market cultural distance propensities among five types of blockholders (family, corporations, bank and insurance companies, resistant financial institutions, and government) and the cumulative abnormal returns (CARs) attributable to CBA announcements.Theoretical/academic implicationsFirst, international corporate governance scholars should understand the nonfinancial motivations of shareholders when evaluating potential conflicts in internationalization strategy and performance. Second, future studies should recognize that PP issues in the multinational firm are a multidimensional construct, composed of multiple sources of conflicts beyond the traditional focus on controlling‐versus‐minority shareholders. Lastly, the PP literature should shift its rhetoric from conflicts to a good balance between benefits and conflicts, depending on the degree of heterogeneity among principals.Practitioner/policy implicationsAn optimal ownership structure may involve moderate diversity among blockholders in their nonfinancial preferences. This optimal level should bring in diverse resources and perspectives from different blockholders, while keeping coordinating costs moderate for aligning different goals of these blockholders.