How Country Reputation Differentials Influence Market Reaction to International Acquisitions

This study investigates the influence of country reputation differentials on market reaction to international acquisitions. Building on social identity theory, we argue that market reactions are more positive when the reputation of the acquirer’s country is better than that of the target’s, since a...

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Bibliographic Details
Published in:Journal of management studies 2021-09, Vol.58 (6), p.1609-1639
Main Authors: Li, Chengguang, Shenkar, Oded, Newburry, William E., Tang, Yinuo
Format: Article
Language:English
Subjects:
Acquisition
Companies
country reputation
international acquisitions
international business
market reactions
Markets
Media coverage
News media
Reputations
Social categorization
Social identity
social identity theory
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Summary:This study investigates the influence of country reputation differentials on market reaction to international acquisitions. Building on social identity theory, we argue that market reactions are more positive when the reputation of the acquirer’s country is better than that of the target’s, since a country’s reputation imprints on its firms due to social categorization. Thus, firms from countries with better reputations are perceived as having superior skills/capabilities and the reputation difference suggests that the acquirer is able to identify/exploit undervalued targets and leverage synergies. The influence of country reputation should be weaker when additional information on the merging firms is present, through news media reporting and analyst coverage of the merging firms as well as the acquirer’s prior acquisition track record, since market investors will rely less on country reputation. We find support for our hypotheses for a sample of 4,792 international acquisitions across 48 countries from 2009 to 2017.
ISSN:0022-2380
1467-6486
DOI:10.1111/joms.12706