Determinants of target selection and acquirer returns: Evidence from cross-border acquisitions

We examine cross-border acquisitions of private and public targets by U.S. firms by employing self selection models. We are particularly interested in the roles of country-level liquidity and transparency in cross-border acquisitions. Our results show that a typical acquisition deal of a private target is smaller in size, uses cash less frequently for payment, and involves more high-tech firms than that of a public target. Most importantly, we find that acquiring firms are more likely to buy private targets in lower-transparency countries, but the level of market liquidity in the target firm countries has little effect on the target selection. Furthermore, after accounting for the endogeneity bias associated with target selection, country liquidity is no longer a key determinant of acquirer returns in cross-border acquisitions. Our results are robust to alternative specifications of dependent variable and self selection models.