Linguisitc Distance And Mergers And Acquisitions

As an important informal institution,language is essential for the economic development.Yet,little is known about the origins of language effect and few people have done researches on it.Considering the coexistence of many dialects,the specific cultural patterns and ways of thinking which exist in the linguistic features of the market participants will play an important role in the economic activities of the enterprises in a subtle way.This paper,based on the classification data of Chinese dialects in the Chinese Language Atlas and taking the most attractive investment activities of enterprises,M&A events,as the research foothold,is aim to investigate the differences of language among different aspects of market participants.We identify acquisitions made by listed companies between 2000 and 2012 and find that the greater the language distance is the less the shareholder value will be.Further analysis shows that the effect only works in following conditions,when the CEO of the acquirers has a lower political connection,when the location of the acquirers has a lower degree of marketization or is underdevelopment,when the acquirers and targets belong to different industries,when the acquisitions are not involved with high-tech industries.This article enriches the literature on informal institutional and economic relations,as well as cross-region M&A studies.This paper also provides a new way to study economic behavior,such as corporate mergers,from a language perspective,which will help to understand the relationship between China's special language environment and economic behavior.At the same time,the results of this study also provide a new idea for the stock selection in stock investment.