Naked M&A Transactions: How the Lack of Local Expertise in Cross-Border Deals Can Negatively Affect Acquirer Performance - and How Informed Institutional Investors can Mitigate This Effect

Faelten, A., Gietzmann, M. & Vitkova, V. (2014). Naked M&A Transactions: How the Lack of Local Expertise in Cross-Border Deals Can Negatively Affect Acquirer Performance - and How Informed Institutional Investors can Mitigate This Effect. Journal of Business Finance and Accounting, 41(3-4), pp. 469-506. doi: 10.1111/jbfa.12049

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Abstract

This paper tests how informed investors with local expertise can affect cross-border deal success using a comprehensive dataset of corporate acquirers’ share registers. We posit that deals in which long-term investors have a high level of expertise in the target firm's region are more likely to perform better than if the deal is ‘naked’, i.e., when such regional expertise amongst the investors is low. We show that the strength of this effect depends upon an index of country-level M&A maturity which measures the relative divergence between acquirer and target countries. Specifically, we investigate whether acquirers investing in countries with low M&A maturity gain greater benefit from investors with regional expertise. We present evidence which confirms the hypothesis that acquirers in cross-border corporate transactions are more likely to be successful if the acquirer's investors have a higher level of expertise in the target region, and that this effect is strongest when the maturity for corporate transactions of the target country is low. This provides a specific setting which is consistent with earlier theoretical work that argues in general that information flows should not just be from firms to capital markets but also in the opposite direction, and that this flow of information is particularly important whenever information is dispersed.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Faelten, A., Gietzmann, M. & Vitkova, V. (2014). Naked M&A Transactions: How the Lack of Local Expertise in Cross-Border Deals Can Negatively Affect Acquirer Performance - and How Informed Institutional Investors can Mitigate This Effect. Journal of Business Finance and Accounting, 41(3-4), pp. 469-506., which has been published in final form at http://dx.doi.org/0.1111/jbfa.12049. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Uncontrolled Keywords: cross-border M&A; institutional investors; investor relations; financial geography; country development; M&A maturity
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/13751

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