Partner Favorability and Acquisition Premia in Cross-Border M&A's

Abstract

Abstract In this paper, we examined the linkage between a firms sentiment toward the national identity of its acquisition partner and the acquisition premium paid. Using a sample of 435 cross-border M&As in 38 countries, we found that the acquisition premium is negatively associated with: 1) the degree of favorability the acquiring firm holds toward its target firms national identity

and 2) the degree of favorability the target firm holds toward its acquiring firms national identity. In addition, information asymmetricity was shown to moderate the relationship between the acquirer's favorability of the target firm and the acquisition premium. Specifically, the acquiring firms tend to rely more on their subjective favorability in unrelated acquisitions in which they lack information on the target firm. In sum, our results shed new insight on the effects of subjective favorability of national identities on acquisition premia in the context of cross-border M&As.