Do cross-border acquisitions create value? Evidence from overseas acquisitions by Chinese firms

• Opportunities attract many firms from emerging markets to acquire foreign targets.
• Many acquirers were eager to learn but learning is hindered by cultural distance.
• We hypotheses that absorptive capacity moderates the effect of cultural distance.
• The hypotheses are supported by analysis of 367 deals by Chinese acquirers.
• Large firms, experienced firms and non-diversified acquisitions were less affected.

Based on the dynamic capability and organizational learning perspectives, we examine whether acquirers from emerging economies can create value for their shareholders in cross-border mergers and acquisitions, and the key drivers which may influence any such value creation. A sample of 367 cross-border mergers and acquisitions between 2000 and 2011 involving Chinese listed companies as the acquirers was analyzed to highlight the relationship between the cultural distance involved and the acquirers’ market valuation. On average, such cross-border transactions created value for the acquirer's shareholders, but cultural distance was negatively related to the extent of such value creation. Larger firms, more experienced firms, and acquisitions within the same industry were found to be less affected by cultural distance, emphasizing the importance of learning and absorptive capability, but employing a financial advisor did not seem to help. Thus firms with greater absorptive capacity were found better able to overcome the difficulties caused by cultural differences. Implications for research and practice are discussed.