Surviving after Cross-Border Acquisitions: How Business Relatedness, Host Country Experience, and Cultural Distance Affect Acquired Firms

Abstract

The effects of cross-border acquisitions on the survival of target firms is attracting increasing academic interest. Specifically, whether cross-border acquisitions may hamper target firms’ performance or enhance their sustainable competitiveness represents a highly debated research question. Building on the knowledge-based perspective of mergers and acquisitions, this paper directs attention to absorptive capacity and investigates the likelihood of survival of target firms acquired by foreign investors. In particular, it examines the role played by three potential antecedent conditions of an acquiring firm’s absorptive capacity on the probability of the target firm’s survival: (a) The business relatedness between acquirer and target, (b) previous experience of the acquirer in the host country, and (c) the cultural distance between the countries of the acquiring and acquired firms. Based on a sample of 396 Italian firms acquired by foreign multinationals, results suggest that target firms are more likely to survive in case the acquirer benefits from previous country-level experience and in case of business relatedness, while the cultural distance between the home country of the acquiring firm and Italy does not prove to be a significant determinant of survival versus mortality of acquired subsidiaries. Overall, our analysis confirms that context familiarity, in terms of both country and business contexts, plays a fundamental role in determining the sustainable competitiveness of acquired firms.