Uncertainty Avoiding Behavior and Cross-border Acquisitions

The influence of managerial attitudes on corporate finance has become a topic of great interest. For example, Malmendier and Tate (2008) show that overconfident managers are more likely to conduct acquisitions. This research explores the impact of national business cultures on cross-border acquisitions. Business cultures can influence the ways managers cope with uncertainty and their subsequent business decisions, as was described in seminal research by Hofstede (1991). By their very nature, cross-border acquisitions require that managers deal with different cultures and higher levels of uncertainty. We seek to understand how business cultures affect value in cross-border acquisitions using data from the Asia-Pacific Rim region over the period 2000-2009. The countries in this region have large cultural differences, and the potential gains from acquisitions are very substantial, so these data are an excellent population for analysis. Our results show that different business cultures have an important influence on financial decisions by firms in ways that are consistent with classic research by Knight (2006), and also that different business cultures cope with uncertainty in different ways. We find that acquirers from countries with a high aversion to uncertainty conduct fewer cross-border acquisitions. Furthermore, these high uncertainty averse firms pay a higher price for control in cross-border deals.