Investor reactions to international acquisition announcements.

Abstract

This study aims to examine the impact of cultural distance and corporate governance

mechanisms on investors’ reactions to cross-border acquisitions. We base our study on a

sample of 279 acquisition deals performed by publicly listed U.S. firms over 10 years.

Our regression results indicate that improving certain aspects of corporate governance,namely proportion of equity ownership by inside/independent directors, will lead to more positive abnormal returns. However, there is insufficient evidence to conclude any relationship between proportion of independent director/ independence of chairman and investors’ reactions. There is also no significant evidence to conclude a relationship between cultural distance and investors’ reactions.

However, various interaction terms between cultural distance and corporate governance

mechanisms show significant coefficients in the regression model. Specifically, the

presence of an independent chairman and the proportion of equity held by inside/independent directors appear to mitigate the negative relationship between

investors’ reactions and cultural distance between the U.S. and the countries of the

target firms.