The influence of cultural tightness-looseness on cross-border acquisition performance

Abstract

A growing body of research in economics focuses on whether cultural differences in social norms affect economic outcomes. Here we examine how differences in the strength of social norms—or tightness-looseness (TL)—across countries can explain the financial performance of cross-border acquisitions (CBAs). We hypothesize that differences in TL hamper CBA performance, and further propose that the direction and absolute level of TL, industry relatedness, and membership in high-tech industries moderate the TL-CBA performance relationship in important ways. Using data for 4,717 CBAs in 30 countries between 1989 and 2013, we find that a one standard deviation increase in TL difference is associated with an average decrease in acquirer's return on assets equivalent to 245 million US dollars in its net income. We further find that this effect is particularly pronounced when the acquirer is tighter than the target, at greater levels of tightness, and in high-tech industries. Theoretical and practical implications of the strength of social norms for CBAs as well as the broader field of economics are discussed.