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How Country Reputation Differentials Influence Market Reaction to International Acquisitions
Author(s) -
Li Chengguang,
Shenkar Oded,
Newburry William E.,
Tang Yinuo
Publication year - 2021
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/joms.12706
Subject(s) - reputation , leverage (statistics) , business , sample (material) , categorization , country of origin , exploit , marketing , social science , philosophy , chemistry , computer security , epistemology , chromatography , machine learning , sociology , computer science
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.