Effect of Cultural Distance on Cross-Border Merger & Acquisition (M & A) Performance of Chinese Multinational Enterprises (MNEs)

Abstract

This research empirically tested to the influence of cultural distance (CUD) on cross-national M&A performance of Chinese MNEs, and tested whether overseas background of executives (OBE) and firm experience of successful overseas M&As (FEOM) had the moderating effect. Referring to the theory of liability of foreignness, organizational learning theory, and cross-cultural management theory, this research supposed the negative effect of CUD on overseas M&A performance and the significant roles of OBE and FEOM to reduce this negative effect. The overseas M&A performance is measured using financial ratios of Tobin’s Q (TOBQ), return on assets (ROA) and earnings per share (EPS), using the one-year lag data. Based on a sample of 189 firm-year observations results from 112 Chinese MNEs during 2008 - 2018, the multiple regression analysis was run and showed: firstly, CUD had a significantly negative influence on overseas M&A performance (TOBQ and ROA). Secondly, FEOM had a directly positively significant effect on overseas M&A performance, but not the significant moderating effect. Thirdly, however, OBE did not have significant direct or moderating effect on overseas M&A performance.