Research seminar 30th April with Lena Langosch

Abstract:  We investigate the role of cultural distance—linguistic, religious and political—on merger and acquisition (M&A) completion and disentangle it from the role of different regional and national formal institutions as well as geographic distance.

In a large-scale sample of German and Austrian M&As, we find one standard deviation increases in linguistic distance—as captured through dialect differences that vary continuously across national and regional borders—and religious distance, holding all else constant, are associated with 25% and 20% lower probabilities of merging respectively, while political distance has no robust effect. Although when measured alone, a standard deviation increase in geographic distance is associated with a greater than 50% drop in merger probability, this penalty can be completely explained by cultural distance in our setting—controlling for culture, the effect of geographic distance vanishes.

The same does not hold for formal institutions—crossing a national or provincial border is associated with 60% and 50% reductions in the probability of a merger, respectively, even after accounting for cultural effects.