The Effect Of National Cultural Distance On Cross-border M & A Performance Of Chinese Listed Companies

On 21 January 2015, the spokesperson of the Ministry of Commerce disclosed on the monthly regular press conference that, according to statistics of the Ministry of Commerce and State Administration of Foreign Exchange, the volume of foreign direct investment from all industries in China was US $116 billion in 2014. Coupled with that of the third financing and investment, the volume of foreign direct investment totaled about US $140 billion, which is US $20 billion more than China’s utilization of foreign investment. Namely, Chinese real foreign investment in 2014 excessed the volume of the utilization of foreign investment. China has become a net capital exporter.This implies that more and more enterprises in China are implementing the "going out" strategy, conducting cross-border mergers and acquisitions(M&A). In the first half of 2014, China finished 75 cross-border M&A, attaining a year-on-year growth of 54.7%. Cross-border M&A are booming in China and many enterprises succeeded in these activities. However, we should also know that there are still a lot of enterprises failing in these activities. What’s the problem? One important question that comes into our mind is that what are the causes leading to the high failure rate of a large quantity of cross-border M&A. In terms of this question, many academic researchers and business experts generally recognize that insufficient cultural integration after cross-border M&A is the key to the failures.Culture distance between two sides of the M&A is the key contributor to conducting cultural integration. Culture distance is widely composed of three levels: the level of enterprise culture, the level of business culture and the level of national culture. Among these levels, national culture is always posing the most fundamental and far-reaching effect. Therefore, it is quite important and necessary to explore the relationship between national culture distance and cross-border M&A performance of Chinese enterprises. Meanwhile, in order to understand clearly the mechanism between the two variables, it is strongly recommended to deeply analyze the moderation mechanism that influences the relationship between national culture distance and cross-border M&A performance.Based on the questions above, this paper aims to investigate the effect of national culture distance on cross-border M&A performance of Chinese enterprises and the moderation effect. Specifically, in the theoretical part, the paper mainly summarizes the researches on national culture distance, M&A performance and their measuring methods. It also concludes the overall existing researches on the effect of national culture distance on cross-border M&A performance. All the work has laid a solid foundation for the empirical research. In the empirical part, the paper chooses the listed Chinese companies that have conducted cross-border M&A in the recent five years as research sample, and calculates the culture distance between China and target country by a revised edition of the measurement raised by Kogut & Singh, coded as the independent variable. Finance indicators from the sample companies of the year before M&A, the year conducting M&A, one year after M&A and two years after M&A are collected by CSMAR Solution and Sina Finance. Then this paper uses factor analysis to compress the finance indicators and calculates a comprehensive score, coded as the dependent variable. Considering the potential moderation effect, the paper also selects organizational experience and organizational structure as moderators for the research. In terms of the specific statistical method, the paper first gave a brief description of the sample. For the variables researched in the paper, descriptive analysis and correlation analysis are conducted. Above all, grouped regression was used to examine the main effect and moderation effect between national culture distance and cross-border M&A performance.Empirical results revealed some important conclusions. On one hand, national culture distance was negatively correlated to cross-border M&A performance. On the other hand, organizational experience and organizational structure both significantly moderate the relationship between national culture distance and cross-border M&A performance. Based on these conclusions, the paper proposes some strategies and advice for listed companies’ cross-border M&A, including the government level and company level. In the end, the paper sums up some limitations and points to the issues worthy of further study.