Efficiency gains and foreign takeovers: remoteness matters

This paper investigates the effects of horizontal acquisitions on the productive efficiency of target firms in the 1990s. Using French manufacturing firm-level data, we implement appropriate difference-in-difference estimation techniques associated to a matching propensity score procedure. We found that foreign takeovers increase the total factor productivity of French target firms. This effect is similar, but more important for non-European operations. Going one step further, we show that the performance of acquisition is related to the cultural, institutional, geographic and economic distance between the foreign owner and its newly French affiliate. It is stated that operating in remote cultural and institutional environments lead to performance-enhancing synergies to the greatest benefit of the acquired firm. But, geographic distance seems to have a negative impact. It is true for both European and non-European mergers. As for the economic distance, our results suggest that a higher gap in sectorial TFP enhances the post-acquisition productivity of target firms especially for European acquisitions. However, distance in market size does not look to matter. These findings put forward the importance of remoteness as a key factor in explaining the performance of international acquisitions.