Cross-border Acquisitions and Institutional Distance: Does Country Relatedness Matter?

A cross-border acquisition involves not only overcoming the barriers of geographic distance but also institutional distance (ID). Although the existing literature has devoted considerable attention to various aspects of ID separately, there is little understanding of the potential interactions between the formal and informal aspects of ID. We examine the effects of these two aspects of ID simultaneously on cross-border acquisitions and test their interactions. Meanwhile, we study the traditionally neglected country-connectedness factor and examine its impact on the relationship between ID and cross-border M&As. Our results show that the formal and informal institutional distances do not have the same negative impact on the magnitude of cross-border M&As and that the country connectedness plays a vital role in influencing cross-border acquisitions and shortening ID between the dyadic countries. Our findings provide strategy implications for corporations engaged in cross-border acquisitions.