The Influence of Nation-Level Institutions on Acquisition Premiums: A Cross-Country Comparative Study

Abstract

We build on neo-institutional theory to examine the manner in which nation-level institutions systematically affect domestic acquisitions—that is, acquisitions involving acquirers and targets from the same country. Specifically, we study in what way premiums are influenced through a set of cognitive, normative, and regulatory forces. In terms of cognitive pressures, we theorize that prior premium decisions of industry peers in the same country influence focal acquisition premiums, since prior premium decisions serve as reference frames for firms. In addition, we posit that normative forces in the form of the national cultural values of uncertainty avoidance, future orientation, and in-group collectivism affect bid premiums, as these factors influence the manner in which firms deal with the uncertainty, payoff time, and merger of groups inherent to acquisitions. Furthermore, we propose that a country’s regulatory pressures through its disclosure requirements influence premiums, since they reduce information asymmetries and affect a firm’s confidence in assessing its potential gains from acquisitions. Using a sample of domestic acquisitions, we find support for several of the hypotheses. Our work offers a cross-country comparative study of how nation-level institutions affect domestic bid premiums and makes theoretical contributions to acquisition premium research and institutional theory.