Uncertainty avoiding behavior and cross-border acquisitions in the Asia-Pacific region

- Business culture has an important influence on cross-border acquisitions.
- Managers from cultures with high uncertainty avoiding behavior conduct fewer cross-border mergers.
- Managers from high uncertainty avoiding cultures pay higher premiums when they carry out cross-border acquisitions.
- The link between uncertainty avoiding behavior and cross-border acquisitions is different from the link between origin of law and cross-border acquisitions.
- The Asia-Pacific region accounts for a growing proportion of high value cross-border acquisitions.

This research explores the impact of national culture on cross-border acquisitions. National culture can influence the ways managers cope with uncertainty, and their subsequent business decisions, as was described in seminal research by Hofstede (1991). By their very nature, cross-border acquisitions require that managers deal with different cultures and higher levels of uncertainty. We seek to understand how national culture affects value in cross-border acquisitions using data from the Asia-Pacific Rim region over the period between 2000 and 2009. The countries of this region have large cultural differences and the potential gains from acquisitions are very substantial, so these data are an excellent population for analysis. Our results show that different national cultures have an important influence on financial decisions by firms in ways consistent with classic research by Knight (2006), and also that different national cultures cope with uncertainty in different ways. We find that acquirers from countries with a high aversion to uncertainty conduct fewer cross-border acquisitions. Further, these high uncertainty aversion firms pay a higher price for control in cross-border deals.