Cross-border acquisitions and cultural distance: the impact on performance of target firms

The present paper aims at analyzing the influence of cultural distance on acquisitions from foreign investors of Italian mid-sized firms in terms of the economic performance of target firms. The research covers two main topics. The first one, related to cross border acquisitions, is quite wide, and it is either focused on acquirer's or acquired's perspective in order to understand whether or not the acquisition performance of these firms increases. The second topic, concerning cultural distance, is particularly relevant in studies on the internationalization strategies of firms. Among them, a variety of works has focused on cultural distance as an explicative variable of the results of cross-border acquisitions. Using data from the Mediobanca Research and Studies Database we analyze Italian mid-sized firms acquired from foreign investors between 1999 and 2009, in order to understand whether or not their performance improved over the post–acquisition period. Using a multidimensional measure of cultural distance, we tested the relationship between cultural distance and target firm’s performance in cross-border acquisitions by means of a regression analysis. Our study is the first to examine the impact of cultural distance on post-acquisition performance using a sample of Italian mid-sized firms. The findings support our suggestion that cultural distance has a negative effect on post-acquisition performance.