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Keywords:

  • international mergers;
  • cross-border takeovers;
  • culture
  • J34

Abstract

We examine how cultural differences between bidder and target countries impact internalization benefits in cross-border takeovers. The value of internalizing intangible assets may increase if cultural differences create high transaction costs. On the other hand, integration difficulties between culturally distant acquirers and targets may reduce the value of internalization. Our results show that greater cultural distance (CD) has a positive influence on the long-run performance of bidders with high intangibles, suggesting that significant internalization benefits from technological know-how are realized when CD is great. These findings highlight the importance of national culture when examining internalization benefits in cross-border mergers.