Chapter 8 The Psychic Distance Hazards in Cross-Border Acquisition Performance: An Empirical Study of Cross-Border Acquisitions from 26 Countries

In this chapter we test a conceptual model to shed light on the psychic distance (PD) hazards in cross-border acquisitions’ (CBAs’) performance. Only a few studies have sought to examine the impact of national-level dimensions on CBAs’ performance, such as cultural distance or PD, with non-conclusive and contradictory results. Event study methodology is used to scrutinize the impact of the five key dimensions of psychic distance stimuli (PDS) on the stock market performance of the US acquirer firms and 26 countries involved in the CBA. Our results support that PD, as a whole, has a negative impact on CBAs’ performance although only in the short term there is a statistically significant negative impact, whereas in the long term no effect is statistically significant. Analyzing the different dimensions of PDS, only differences in language, education, and political systems are significant. This chapter is the first to empirically examine the PD hazards on CBAs by breaking down the PDS and test the effect of each dimension on CBAs´ performance. The findings of this study may be useful for managers of firms that wish to undertake CBAs as it denotes important dimensions which hinder post-deal performance.