Who asks for higher merger and acquisition premiums? The perspective of national collectivism

Abstract

This study explores the impact of a collectivist culture on the premiums of cross-border merger and acquisition (M&A). Using a sample of cross-border M&A transactions conducted by Chinese firms, this study empirically investigates the role of a tendency toward collectivism in the target firm’s country in M&A pricing. The results show that collectivism in the target firm’s country, measured as an institutional collectivist tendency and an in-group collectivist tendency, negatively correlates with M&A premiums, in both statistically and economically significant ways. A one-point increase in institutional collectivism and in in-group collectivism can reduce the M&A premium by around 30 and 20 percentage points, respectively, ceteris paribus. I draw from the empirical results the conclusion that national collectivism has a great impact on M&A premiums. This conclusion is significantly revealing about the cross-border M&A decisions of enterprises in emerging markets.