Long-Term Value Creation in Cross-Border Mergers and Acquisitions : The Role of Trust

We examine whether trust between the citizens in an acquirer’s country and those in a target’s country improves long-term synergistic gains in cross-border M&As. We find that acquirers’ announcement returns increase as trust increases. The result is robust to using a historical war as an instrument for trust and French and German opposition to the U.S.-led invasion of Iraq as a shock to trust. Trust also positively affects combined firm returns and long-term stock and operating performance and employee retention in the post-M&A period. Long-term stock performance improvement is particularly higher when barriers to integration are greater