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Does target geographical complexity impact acquisition performance

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  • Chkir, Imed
  • Dutta, Shantanu
  • El Haj Hassan, Boushra

Abstract

Using a sample of 738 U.S. M&A deals, we examine whether a target's geographical complexity affects acquisition performance. Our results show that target geographical complexity is associated with (i) lower acquirer abnormal returns, and (ii) higher acquisition premiums. These results imply that acquiring firms overestimate their synergistic gains associated with more geographically diversified targets and acquirer shareholders are less enthusiastic about such deals. Further, we find that despite unfavorable market reactions, acquiring firm managers are not likely to abandon geographically complex target deals. Our main results remain qualitatively similar after addressing plausible endogeneity bias.

Suggested Citation

  • Chkir, Imed & Dutta, Shantanu & El Haj Hassan, Boushra, 2020. "Does target geographical complexity impact acquisition performance," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319302569
    DOI: 10.1016/j.frl.2019.05.014
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    More about this item

    Keywords

    Mergers and acquisitions; Target geographical complexity; Performance; Event study;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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