National Culture and Hofstede’s Cultural Dimensions: Do they affect the success of cross - border M&As?

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Rijksuniversiteit Groningen

National Culture and Hofstede’s Cultural Dimensions:

Do they affect the success of cross - border M&As?

Supervisor: Dr. Gjalt de Jong

Andreas P. Gerofokas (1667297)

MSc. International Economics & Business Thesis

Faculty of Economics

Rijksuniversiteit Groningen

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Acknowledgements

Now that the demanding and challenging process of writing this MSc. Thesis comes to an end I would like to express my sincere gratitude to the following persons. My supervisor Dr. Gjalt de Jong for his support, his guiding attitude and his helpful comments and suggestions that helped me conclude this thesis in the proper way. Dr. Padma Rao Sahib, for her assistance in making the best of the methodology used in my thesis and for helping me overcoming difficulties of a practical nature. Dr. Niels Hermes for his help and support during the Advanced International Business course when the original concept of this study was conceived. Finally, to everyone in RuG and especially my instructors and fellow students for making this year of studying in Groningen a unique and memorable experience.

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Abstract

This study examines the nature of the relationship between the success of cross – border Mergers and Acquisitions and the national culture of the involved parties by examining data from 67 countries with regard to the four original cultural dimensions created by Professor Geert Hofstede; PDI, IDV, MAS, UAI, and data concerning the volumes of completed and total (completed and withdrawn) M&As in each of these countries. I concluded that: a) in most cases the cultural dimensions when examined separately are not related to the volumes of completed M&As, b) that cultural distance negatively affects the success of M&As and c): that not all dimensions have the same importance. IDV is the more relevant, according to the results. The data was divided into two datasets. The first dataset deals with the acquiring firm’s country data and in the second dataset USA has been chosen as the default home country. The GDP per capita, the population and the distance between countries have been used as control variables. Success is defined as the completion of the deals while failure as the withdrawal of deals before their completion.

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List of Tables and Figures

Pages

Table 1: Theories of merger motives ... 9

Table 2: Managerial motives for M&As... 10

Table 3: An overview of studies dealing with culture and M&As... 16

Table 4: Hofstede’s four original cultural dimensions... 18

Table 5: Comparison of Hofstede’s framework to others ... 23

Table 6: Descriptive statistics of dataset 1... 34

Table 7: Descriptive statistics of dataset 2... 35

Table 8: Coefficients correlation of dataset 1 ... 35

Table 9: Coefficients correlation of dataset 2 ... 36

Table 10: Results of model 1 – Dependent variable “Completion Ratio” ... 37

Table 11: Results of model 1 – Dependent variable “Successful M&As”... 37

Table 12: Results of model 2 – Dependent variable “Completion Ratio” ... 38

Table 13: Results of model 2 – Dependent variable “Successful M&As”... 39

Table 14: The formed hypotheses and their status... 41

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1. Introduction

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and Uncertainty Avoidance Index (UAI). These dimensions have been used for the same 67 countries and are thought to be constant through time as they represent basic values of a country’s culture.

This study examines the relationship of each of these cultural dimensions and a general cultural distance index with the succeeded M&As in each country. The process of examining the existence and the nature of this relationship has been applied to two datasets. The first dataset focuses on the home country’s succeeded deals as well as the home country’s cultural dimensions. In the second dataset United Stated of America (USA), is chosen as the default home country and the number of deals refer to the deals that USA engaged in with each of the rest 66 countries. Cultural dimensions in this dataset are derived using the Kogut and Singh, 1988 methodology for determining the general cultural distance index. So in this dataset the cultural distance between USA and each of the rest 66 countries is calculated using the methodology mentioned above. This methodology is the most common when it comes to calculating cultural distance and it has been used in many studies. The reason for the existence of this second dataset is to put the popular term of cultural distance to the test as far as its role in the success of M&As is concerned. The reason for the choice of USA as the default home country will be explained later on.

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2. Literature Review

Reviewing the literature of such a popular issue can prove to be a demanding task since connecting national culture with M&As and deciding for or against this connection seems to be an interesting topic and many authors have expressed their views either agreeing that culture affects the success or failure of deals, or supporting that the more important reasons that determine the outcome of deals are not of a cultural nature. What follows is a review of literature concerning M&As, national culture, and their connection.

2.1. Mergers and Acquisitions

As mentioned above, M&As are a popular strategy for many companies, (WIR, 2001), and even though the merging of firms is not a recent phenomenon, as there were M&As also in the 1920s, 1960s and 1980s (Fairburn & Kay, 1989), in recent years the deals are far more impressing than the preceding ones both in numbers and in values (Andrade et al., 2001). Acquisition activity in the late 1990s totaled over three trillion dollars globally (Fortune 24/11/1997; The Economist 22/6/2000). However, the scale of M&A activity in the more recent years is the highest ever recorded as the total value of M&As worldwide reached the amount of $2.4 trillion in 1998 increasing 50% from 1997 (M&As Outlook Summary Survey, 2006). During 2002 – 2004, almost 4.363 M&As took place and the total value of these deals reached over $291.7 billion. The top five sectors at that time with the most increased M&As activities were internet, healthcare, telecommunications, banking and semiconductors (Kleiner & Nguyen, 2003). During 2004 – 2005, approximately 23.000 deals took place and in 2006 that number reached 25.000 and even more (M&As Outlook Summary Survey, 2006). Interpreting this, one could indicate that the total number of world M&As will continue to grow this year. The reasons behind this activity are, as already mentioned, critical to the survival of firms and they vary from market entering, and enhanced competitive positioning to lowering interest rates and more importantly the immediate impact of greater scale that a successful M&A can bring.

2.1.1. Motives for Mergers and Acquisitions

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motivation can be divided into those that support that the M&As consequences are the actual motives behind the deal and to those that do not support this point. The first category of theories deals with matters of shareholder interests and shareholder value maximization. The second category supports that M&As are a process outcome. Many of these theories have been severely criticized for different reasons and are presented in this part of the study simply as an overview of the possible motives behind M&As activity.

These seven basic motivation theories are the following:

1) The efficiency theory. The efficiency theory supports that M&As are planned and executed to achieve synergies of financial, operational and managerial nature.

2) The monopoly theory. The monopoly theory considers market power to be the main motive behind M&As.

3) The valuation theory. The valuation theory supports that the better knowledge that managers possess than the stock market about the targeted firm’s value is the motive behind M&As.

4) The empire – building theory. The empire – building theory considers M&As to be motivated by managerial ambitions of maximizing their own utility instead of shareholder value.

5) The process theory. The process theory supports that the reasons behind M&As activity are not rational choices but outcomes of processes influenced by the limited information processing capabilities of individuals, the organizational routines and the political power “games” of organization subunits and outsiders.

6) The raider theory. The raider theory implies that the motive behind M&As is the wealth transfer from the stockholders of the firms bided for.

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Table 1: Theories of merger motives Net gains

through synergies

Efficiency Theory Wealth transfers from

customers

Monopoly Theory Wealth transfers from

target’s shareholders Raider Theory Merger benefits bidder’s share – holders

Net gains through private information Valuation Theory Merger as a rational choice

Merger benefits managers

Empire – Building Theory

Merger as process outcome

Process Theory

Merger as macroeconomic phenomenon

Disturbance Theory

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Table 2: Motives for M&As

TYPES OF MERGERS AND ACQUISITIONS MOTIVES

VERTICAL HORIZONTAL CONCENTRIC CONGLOMERATE Obtain – exploit

economies of scale and scope

LOW MEDIUM LOW

Deal with critical and ongoing inter

-dependencies HIGH MEDIUM LOW

Expand current product lines and

markets

LOW MEDIUM HIGH LOW

Enter new

business LOW MEDIUM HIGH

Maximize – utilize financial capability

LOW LOW LOW HIGH

Concluding this section about the motives behind M&As activity it is clear that motives are not always the maximization of shareholder value or the entering in a new market. Motives differ according to who decides and according to the type of deal that is prominent. Whatever the motives it seems that they are quite strong for firms and managers since M&As activity is still booming.

2.1.2. Reasons that lead M&As to success and to failure

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pattern is extremely difficult to be created and that is mainly because different reasons lead M&As to failure. In other words, in order for someone to create a set of “golden rules” for successful M&As, one must consider all the different factors that affect the process of the deal from the beginning until the completion and the time afterwards. So this subject of key strategies that lead M&As to success has to be examined concurrently with the subject of why M&As fail. Considering the above, I will present data on failing M&As as well as several key reasons that could lead a deal to failure, reasons quite popular among scholars. Literature is full of studies focusing on failing M&As and on the reasons that are responsible for failure. This is more than justified if we consider that during 2001 more than 20% of worldwide deals failed as can be seen in Figure 1. In addition the inability of long anticipated deals to reach their potential and fulfill their goals is underscored by Carleton, 1997 and Erez – Rein et al., 2004, that stated that the rate of deals failing is between 55% and 70% (Boateng & Lodorfos, 2006). Also, it is obvious in literature that most of the times the expected profits from a M&A never really come to exist. If that can be defined as failure then most of these deals fail (Anderson, Havila &Salmi, 2001). In addition even the goal of increasing shareholder value is many times not fulfilled, with the consequences of the deal being the opposite (Kleiner & Nguyen, 2003). Two of the most prominent examples are the Daimler – Chrysler deal, where the stock price of Chrysler fell by one half after the immediate post – merger boost, the firm was losing money and that resulted in significant layoffs which were anything but anticipated before the deal and the AOL Time Warner deal where shares fell about 70% and shareholders engaged in a lawsuit against the firm. These are just two of the many cases where the anticipated gains from a M&A not only never came to exist, but the results were devastating.

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Figure 1: Failed deals as a percentage of total deals (failed and completed)

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factors that are neglected as the whole process of firms merging takes place. Firms tend to concentrate more on short – term legal and financial considerations and that, in the long – run, brings to the surface problems that affect the morale and the productivity of the workforce (Balmer & Dinnie, 1999). Another point of view that should be taken under consideration is the fact that in most cases the amount paid by a firm to acquire another firm’s shares, might well wipe out any gains generated by the acquisition in the first place (Henry, 2002). Also in various occasions in literature culture has been deemed as the main cause for deals failing (Cartwright & Cooper, 1993; Fralicx & Bolster, 1997; Daniel & Metcalf, 2001; Evans & Mendenhall, 2004). Even though scholars have repeatedly acknowledged the important role of culture in the process of firms merging, only few studies have managed to grasp the actual influence of cultural conflict and its impact on the fate of the deal (Stahl et.al., 2004; Brock, 2005).

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Considering all the above it is clear that in order for a deal to have increased chances of being successful the parties involves should really invest time in the integration process. Communication has to be direct and efficient and senior management should focus on the integration problem with increased attention and flexibility. All the potential emotional, rational and political issues among the people of the firms that may exist due to different cultures should be early realized and resolved before leading to power struggles and a general demoralization of employees. In addition the new entity that is created after the deal should always have a clear and distinct direction and vision, all the issues of roles and authority should be made clear to everyone and focusing on customers must remain management’s first priority. The points mentioned are in no case a formula for successful M&As. At the contrary they are only considerations that managers should take seriously because they are all aspects of the important integration process which sometimes decides the fate of a deal. Especially when it comes to cross – border M&As, a solid and thorough understanding of new markets and their environments can prove to be vital to the deal. Mistakes like assuming that customers are always and everywhere the same, failing to grasp the different meanings of new rules and regulations and not paying attention to different cultures, even though they may seem naïve, they have been disastrous for many cross – border deals. The understanding of the partner’s corporate culture and its employees combined with a respectful way of resolving conflicts is most of the times a good strategy that offers to everyone involved the time to realize change and does not leave the impression of one being undermined by the other; a common problem in many deals that leads the employees of one firm to the “us versus them” thinking and minimizes trust among partners (Marks & Mirvis, 2003). Finally, in certain cases the early planning and execution long before the actual deal is established leads to a prepared and easier integration process, and increases the chances of the deal being successful.

2.2 National Culture

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four cultural dimensions; the detailed presentation of the four dimensions will take place later on. In addition, several points of criticism to Hofstede’s framework will be presented along with other methods and approaches of measuring culture, including a useful comparison of Hofstede’s framework with other known approaches in Table 5.

Table 3: An overview of studies dealing with culture and M&As

STUDY RESEARCH

QUESTION

METHOD SAMPLE RESULTS

The role of culture in the merger

and acquisition process: Evidence from the European

chemical industry Lodorfos & Boateng (2006)

This study attempts to examine the role played by culture and provide a framework for enhancing the success of mergers and acquisitions.

32 in depth interviews Senior managers of 16 M&A deals in the chemical industry.

Cultural differences between the merging firms are a key element affecting effectiveness of the integration process and consequently the success of M&As.

Global Mergers and Acquisitions:

Why Do So Many Fail? How to Make

Them Successful? Morosini

(2004)

How national cultural differences affect the performance of cross-border M&As.

Regression analysis of cultural distance and cross – border M&As performance.

400 cross – border M&As from 1987 since 1992

The higher the national cultural distance between the acquirer and the target company,

the better the performance results.

International mergers and acquisitions in

the UK 1985–94: a comparison of

national HRM practices Faulkner, Pitkethly & Child

(2002)

Are such things as best HRM practices consistent across nationalities or companies of different nationalities generally adopt HRM strategies that reflect their national cultures, and to what degree the process of convergence to best practice across national styles is evident.

Survey and interviews 241 cross – border M&As

There is some convergence of

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On managing cultural integration and cultural change

processes in mergers and acquisitions

Katinka Bijlsma-Frankema (2001)

How can the part played by culture in the success and failure of

organisational melting processes be conceived of? Can management of cultural integration and change processes play a critical part in the success of these transactions?

Topic – guided

interviews. Forty-two case studies of organisations in change, due to merger, acquisition or changing policy.

Cultural integration is furthered by mutual trust. Cultural

change processes were found to be dependent on legitimisation of the changes, clarification of goals and changes in what is expected of

organisational members, monitoring and guidance, conditions of

psychological safety, and feedback on success and failure outcomes that is worked upon in a learning mode.

National Cultural Distance and Cross-Border Acquisition Performance

Morosini; Shane; Singh (1998)

What is the effect of cultural distance on acquisition performance.

Interviews 52 cross – border acquisitions from 1987 – 1992 Positive association between cultural distance and acquisition performance

Relative standing and the performance of recently acquired European firms. Very, Lubatkin, Calori & Veiga

(1997)

This study draws on the concepts of relative standing to explain the post-merger performance of recently acquired European firms.

Survey 106 mergers in Europe

from 1987 - 1989 Cultural differences were not important in determining performance

National and Corporate Cultural Fit in

Mergers/Acquisitions: An Exploratory

Study

Weber; Shenkar; Raveh (1996)

What is the relative role of national and corporate cultural fit in predicting effective integration between merger partners.

Cross – section survey 52 mergers from a large sample of acquired US firms from 1985 - 1987

National and corporate cultures are separate constructs with variable attitudinal and

behavioral correlates.

The Effect of National Culture on the Choice of Entry Mode

Kogut; Singh (1988)

Does national culture influence the selection of entry modes?

Multinomial logit model 228 entries into the United States market by acquisition, wholly owned greenfield, and joint venture.

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2.3 Hofstede’s cultural dimensions

Geert Hofstede created the original four cultural dimensions, the ones used in this paper, during his work in IBM between 1967 and 1973. He factor – analyzed more than 60.000 responses to 116.000 questionnaires to a survey instrument from over 66 countries (Galleta, McCoy & King, 2005). The results of his research were first published in his book “Culture’s Consequences” in 1980. He ultimately created five dimensions, assigned indexes on each to all countries and linked his dimensions with demographic, geographic, economic and political aspects of a society (Soares et al., 2007). This linking to several aspects of a society is what differentiated Hofstede’s work from similar projects. The last dimension is “Long versus Short Term Orientation”. This fifth dimension was discovered in a study in which students from 23 countries around the world answered a questionnaire created by Chinese scholars. Long Term Orientation is associated with values such as perseverance and thrift while Short Term Orientation is associated with fulfilling social obligations, respecting tradition and protecting one’s image. All the values of this cultural dimension, both negatively and positively rated are part of the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C.; of course a country is not required to have a Confucian heritage in order for this dimension to apply. In this study I will not deal with this dimension but only with the original four.By dimension, Hofstede means the ability to define how a culture’s patterns of behavior solve a given problem and how this behavior is compared to that of other cultures (Naumov & Puffer, 2000). His analysis resulted in the original four dimensions presented in Table 4.

Table 4: Hofstede’s four original cultural dimensions Hofstede’s Cultural Dimension Definition

Power Distance Index (PDI) Degree of inequality among people, which the population of a country considers as normal: from relatively equal to extremely unequal

Individualism versus Collectivism (IDV) Degree to which people in a country act as individuals rather than as members of cohesive groups: from collectivist to individualist

Masculinity versus Femininity (MAS) Degree to which “masculine” values like assertiveness, performance and success prevail over “feminine” values like the quality of life, maintaining warm personal relationships, service and solidarity: from tender to tough

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and perseverance (G. Hofstede). Hofstede has dealt with both national and organizational culture. Many authors have debated about the most appropriate choice of dimensions when it comes to conceptualizing and operationalizing culture (Inkeles & Levinson, 1969; Hofstede, 1984; Bond, 1987; Dorfman & Howell, 1988; Clark, 1990; Hofstede, 1991; Schwartz, 1994; Smith et al., 1996; Keillor & Hult, 1999; Steenkamp, 2001). As already mentioned, Hofstede’s work is the most popular and widely used framework for cultural studies in fields such as psychology, sociology, marketing and management (Sondergaard, 1994; Steenkamp, 2001). Hofstede’s work is the most comprehensive in terms of samples (Smith et al., 1996). Furthermore, his framework is useful in formulating hypotheses in cross – cultural studies (Soares et al., 2007). Hofstede’s attempt to categorize and classify nations based on differences in constant values and beliefs has significantly influenced authors working on culture, as his work is either used in most of these research studies or at least referenced and even those who disagree with the significance of his dimensions and are trying to formulate their own scale of measurement, refer to his work and compare their results to his (Maznevski et al., 2002), (Galleta, King & McCoy, 2005).

2.3.1. Criticism and approval of Hofstede’s framework

Hofstede and his work have not received the same approval by everyone. His work has both been numerously praised and severely criticized. In this section I will present some of the basic points of those disagreeing with the usefulness of the cultural dimensions as well as the views of those in favor including Geert Hofstede.

First of all, the empirical work that resulted in the conceptualization and formation of the five cultural dimensions took place more than 30 years ago and it has quite often been described as obsolete and outdated (McSweeney, 2001). Another point of criticism refers to the method of identifying these dimensions being characterized as empirical rather than theoretical (Albers – Miller & Gelb, 1996), capitalizing on chance (Earley & Erez, 1993), based on one corporation, etc. In addition the applicability of his dimensions to all types of cultures has been repeatedly questioned (Schwartz, 1994). In general, five standard criticisms of Hofstede’s approach are (Hofstede, 2002):

1) Surveys are not a suitable way for measuring cultural differences. 2) Nations are not the best units for studying cultures.

3) A study of the subsidiaries of one company cannot provide information about entire national cultures.

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2.4. Other well known frameworks concerning cultural differences

In 1991, Robert House conceived the well known GLOBE study. Even though the original idea for this study was that it would be an international research project about leadership, at a later point, the study also dealt with aspects of organizational and national culture. During 1994 – 1997 data from 17.000 managers from 951 non – multinational firms was gathered in 62 societies all over the world. The firms were chosen from three sectors: financial services, food processing and telecommunications. In the collection of data 170 volunteers collaborators assisted the process. This quite large research program expanded the original Hofstede model, creating 18 cultural dimensions. These dimensions were later re-analyzed generating this way a set of 5 metafactors which resemble the dimensions created by Hofstede. This approach by GLOBE was not a rival approach to Hofstede’s. It was rather an expansion of the original model, since it worked as a model and paradigm. GLOBE originally created nine dimensions: Humane Orientation, Performance Orientation, Future Orientation which is related to Hofstede’s Long – Term Orientation (LTO), Assertiveness and Gender Egalitarianism which are related to Masculinity – Femininity (MAS), Institutional Collectivism and In – Group Collectivism which are related to Collectivism (IDV) and maintained the names Power Distance and Uncertainty Avoidance. Concerning these nine dimensions GLOBE distinguished them into cultural practices (as is) and cultural values (as should be), creating this way a total of 18 dimensions. Of course this doesn’t mean that the two approaches are similar. They have certain similarities but they also differ in several things. For example, the respondents in GLOBE were managers whereas in Hofstede’s framework employees. A criticism that Hofstede makes in this point is that when you want to measure leadership you should ask the employee and not the manager – leader. Furthermore, the data that GLOBE used was new and the data that Hofstede used was already existing data from a survey in one MNE. The Hofstede framework was created from the re-analysis of that existing data with several additions of course. The fact that the GLOBE project was teamwork and that Hofstede’s was based on his individual efforts is another difference. Finally in the GLOBE project many results are correlated with a country’s wealth which according to Hofstede should have been controlled for, since economic factors do not always explain aspects of culture. These were only a few examples of some of the differences between the two frameworks. In general the GLOBE study is a widely used and accepted approach to cultural differences that in a sense offers yet another confirmation that the basic meanings of several cultural characteristics can be grasped and that dimensions, even though only in our mind (Hofstede, 2006), exist.

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et al., 2002, which included surveys of 7.000 managers in 47 countries in matters concerning the handling of some regular work events, common in any firm. Finally, a major project that is still increasing its database reaching 81 countries in 2004 is the World Values Survey, which originated from the European Vales Survey during the 1980s and is currently coordinated by R. Inglehart. Table 5 demonstrates an overview of some of the differences between Hofstede’s framework and other known cross – cultural studies. What we see in this table is the respective dimensions that each of the other authors have created and with which of Hofstede’s dimensions they are related. By having a look at the dimensions of the other studies it is obvious to someone who knows the meanings of the Hofstede’s dimensions that all the dimensions are strongly influenced by Hofstede. For example, Autonomy / Collectivism (Steenkamp, 2001) is clearly another definition of Individualism / Collectivism by Hofstede. Autonomy / Conservatism (Schwartz, 1994) is clearly related again to IDV. Neutral / Emotional (Trompenaars, 1997) is directly associated with Hofstede’s MAS. In general, the information presented in the table below show a great convergence not only between these approaches and Hofstede’s but between almost all known cross – cultural studies. This clearly supports the theoretical background of Hofstede’s work, enhances the validity of his results and of course justifies further use of his cultural dimensions.

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As mentioned in the beginning of this study, I will investigate the relationship between cultural dimensions and cultural distances with the success of cross – border M&As. In the following section I will present in details the four cultural dimensions that will be used in the study and formulate the hypotheses under testing.

3. Theoretical Argument - Hypotheses

In this section of the study I will present the meaning of the four cultural dimensions used, and I will continue with formulating the hypotheses related to each one of them. The four out of five dimensions that will be used in the framework are: PDI, IDV, UAI, MAS. As already mentioned above those deals that had been completed at the time of the research will be characterized as successful regardless of their current status, while the deals that had been withdrawn and/or terminated at the time of the research will be characterized as failed. I will conclude the section with the presentation of the two regression models used in the testing of the hypotheses.

3.1. Power Distance Index – PDI

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Taking under consideration the basic characteristics that describe this cultural dimension, one could mention that in countries scoring high, people are aware of the difference in the share of power. That means quite simply, that they do not question authority and they don’t try to explain the reasons behind this unequal share of power. In addition these people are extremely receptive to orders coming from powerful superiors and their way of thinking does not include questioning and doubting. As far as M&As are concerned, the acquiring firm’s country, the home country, scoring high on this dimension would presumably mean that the cultural background of the people involved in the deal includes familiarity with differences in authority and power, and they would also demand that the acquired firm’s people indulge the same beliefs. When the home country scores high in this index, the probability of a termination and/or withdrawal of a deal is smaller compared to when the home country scores low in the particular dimension.

Hypothesis 1a : The higher the PD Index of the home country, the higher the

numbers of succeeded M&As.

Hypothesis 1b : The higher the PD Index of the home country, the higher the

number of succeeded M&As relative to the number of total M&As.

3.2. Individualism vs Collectivism – IDV

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can include family, friends and work associates (Triandis, Bontempo, Villareal, Asai & Lucca, 1988). Considering all the above which are the main characteristics of individualistic and collectivist societies it is relevant to state that people in highly individualistic home countries are expected to downplay the importance of strong, long – term oriented ties between partners since the values of cooperation and grouped working and decision - making which are critical in establishing deals are values that are not integrated in these societies and most often deemed as unimportant. Finally, societies that score high on collectivism are societies that support the opposite values than IDV ones, meaning that people consider cooperation and partnership to be of great importance. Considering that the values and ethics that people believe in define their way of living and acting and the way of interacting with each other in all the aspects of social life, including business, it is expected that the probability of a deal being unsuccessful (terminated and / or withdrawn), is higher the higher the home country scores in individualism.

Hypothesis 2a : The higher the IDV of the home country, the lower the number of succeeded M&As.

Hypothesis 2b : The higher the IDV of the home country, the lower the number of succeeded M&As relative to the number of total M&As.

3.3. Uncertainty Avoidance Index – UAI

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perspectives than theirs, have a decreased probability of their deals being withdrawn and / or terminated compared to countries that score high.

Hypothesis 3a : The lower the UA Index of the home country, the higher the number of succeeded M&As.

Hypothesis 3b : The lower the UA Index of the home country, the higher the number of succeeded M&As relative to the number of total M&As.

3.4. Masculinity vs Femininity - MAS

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Hypothesis 4a: The higher the MAS of the home country, the higher the number of succeeded M&As.

Hypothesis 4b: The higher the MAS of the home country, the higher the number of succeeded M&As relative to the number of total M&As.

These hypotheses refer to the first dataset, which emphasizes on the cultural dimensions of the home country; i.e. the acquiring firm’s country. The basic idea behind this choice is that the ownership and rules in a M&A or an IJV are strongly influenced by the parent’s national culture (Erramilli, 1996). In the second dataset USA has been selected as the default home country, and the cultural dimensions are the differences of USA scores to each of the 66 rest countries’ score but derived from the Kogut and Singh, 1988 methodology. This sort of approach has been quite popular in studies examining culture with regard to IJV (Barkema & Vermeulen, 1997; Glaister & Buckley, 1999; Hennart & Larimo, 1998), (Lu, 2006). Apart from the fact that this approach has been used in other studies as well, I particularly chose USA, because the data concerning US investment all over the world were plenty since US firms engage in business activities worldwide and because USA is a strong and rich and influential country of the west, sometimes synonym to a new type of western culture. This approach is used to emphasize on the effects of cultural distance between partners, rather than the effects of the home country’s culture. For this set of data I expect the bigger the differences between national cultures, the bigger the negative impacts on M&As to be.

Hypothesis 5a: The number of succeeded M&As of USA parent firms is higher the lower the cultural distance between USA and each country.

0

3.6. The second regression model – USA as the default home country

The second regression model is created to test the last two hypotheses which refer to the second dataset. The second dataset uses USA as the default home country and this time instead of measuring the scores of the four cultural dimensions separately, a general cultural distance index is created using the Kogut and Singh methodology. That means that the first regression model had to be changed since this time the independent variable will be only one; the cultural distance of USA and each of the rest countries. So the second model is the following:

Model 2: Y =a

0

+ a

1

X

1

+ a

2

X

2

+ a

3

X

3

+

ε

0

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and distance between USA and the host country respectively, and ε0 is the error term. The “a”s’ are the

regression coefficients.

4. Methodology

In this section I will present the sample and data used in the testing as well as a detailed explanation of the methodology used, the model and the reasons for choosing the particular model. I will then move on to the next section which will consist of the presentation of the results and their evaluation.

4.1 Sample and Data

My basic research question – goal is to conceptualize the existence of a relationship between the four original cultural dimensions, PDI, IDV, MAS, UAI and the success of M&As in a sample of 67 countries and identify the nature of that relationship. In other words, to see if and how the success of cross - border M&As is affected by the home country’s national culture and by the cultural distance of the parties involved in a particular deal. The reason for choosing the specific four dimensions is simply the fact that the fifth dimension, long – term orientation, is only available for a limited number of countries. The terms success will be defined in two ways. First, by creating the ratio of the number of successful M&As relative to the number of total M&As, which will be called “completion ratio” and second by measuring the number of successful M&As. All data concerning the number of the deals, as well as their current statuses at the time of data collection came from the ZEPHYR dataset, which extensively contains all sorts of business deals including mergers, acquisitions and international joint ventures. The deals presented in the data were retrieved after searching for all available deals with no time specifications, which means that it contains deals from the oldest available in ZEPHYR until the more recent ones, approximately for the last 10 years.

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4.2. Measures

Apart from the numbers of the completed deals which is the basic dependent variable in this study three basic theoretical constructs have been used to examine the relationship between M&As and culture. The first theoretical construct is the completion ratio. This ratio represents the numbers of succeeded M&As in one country relative to the numbers of total M&As; thus the numbers of succeeded and failed deals. This construct is not a widely used way of measuring success but a similar ratio is presented in Figure 1 which shows the failed relative to total deals being more a failure ratio. This theoretical construct was mainly created in order to add to the dependent variable which is the numbers of completed deals in a way that would allow us to control for the numbers of total deals in a country. The second basic theoretical construct is the fact that success is measured by volumes of succeeded deals instead by data concerning performance. The performance approach or generally an intra – firm approach is a very common technique when it comes to measuring success. In fact, most of the studies presented in Table 3 focus on the firm level and deal with the performance of M&As. The technique used in this study is not a common one, and that is one of the main reasons for choosing it. The results can either confirm or dismiss its value. The final theoretical construct which is one of the most widely accepted techniques is that of the cultural distance index. This technique is used in this study because it offers us a chance to examine the effects of the cultural dimensions combined into one general index that better points out the effects of cultural differences than each cultural dimension separately. This approach was created as already mentioned by Kogut and Singh (1988), and has been used in numerous studies dealing with culture.

4.3. Methods

The basic statistical technique used in this study is the ordinary least squares (OLS). Each of the dependent variables was regressed with all the independent variables in one general linear regression using the backwards method. This method starts with a general regression and in each step it excludes the weakest variable in order to conclude with the most efficient model that better explains the relationship under testing. This regression analysis was performed separately for the two models and their respective datasets. In order to check the model for heteroskedasticity the White test was performed.

4.4. Dependent Variables in Dataset 1

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4.5. Dependent Variables in Dataset 2

The second dataset emphasizes on the role of cultural distance and its effect on the success of M&As. In this dataset as already mentioned, the numbers of succeeded and total deals refer to deals with USA being the acquiring firm’s country. The first dependent variable of this dataset is the number of succeeded deals for USA being the home country and the second dependent variable is the completion ratio of USA’s deals.

4.6. Independent Variables in Dataset 1

The first dataset contains four independent variables which are the scores of the four Hofstede’s cultural dimensions – PDI, IDV, MAS, UAI, for each country. In this way the results of the tests will show if and which of the four dimensions affects the success of M&As and in what way.

4.7. Independent Variables in Dataset 2

The second dataset contains one basic independent variable which is the cultural distance index between USA and each of the rest 66 countries. This index is generated with the Kogut and Singh method, and is a general measure of cultural distance that contains the distances for the four original cultural dimensions. An independent test will also be performed with the numbers of total M&As as a dependent variable to demonstrate not only the effect of cultural distance on the success of a deal but also on the volume of deals in which USA engages with the other countries.

The Kogut and Singh (1988) CD measure:

CD

_j =

√

∑

4

i=1

(I

ij

– I

iUSA

)

2

CDj = The cultural distance between USA and the jth country.

Iij = The score in the ith dimension for the jth country

IiUSA = The score of USA in the ith dimension

4.8. Control Variables

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4.9. Multicollinearity and Heteroskedasticity

Multicollinearity means that some predictors are correlated with other predictors. The predicted values and residuals still are computed with high statistical and numerical accuracy, but the standard errors of the coefficients will be large and their numerical accuracy may be affected. To identify predictors that are highly collinear, we can examine the correlation structure of the predictor variables and regress each suspicious predictor on the other predictors.

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5. Results

In this section I will present the results of the tests for both datasets. I will also examine each hypothesis separately and conclude about their confirmation or rejection based on the results. The full statistical tables of the results can be found in the appendix of the paper.

5.1. Descriptive Statistics

In this section the descriptive statistics will be presented. Table 6 and Table 7 present the descriptive statistics including min, max, mean and std. deviation for datasets 1 and 2 respectively. Tables 8 and 9 present the coefficients correlation.

Table 6: Descriptive Statistics of dataset 1

Descriptive Statistics

N Range Minimum Maximum Sum Mean Std. Deviation

Variance Skewness Kurtosis

Statistic Statistic Statistic Statistic Statistic Statistic Std. Error

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Table 7: Descriptive Statistics of Dataset 2 Descriptive Statistics

N Range Minimum Maximum Mean Std. Deviation Variance MNA 66 1666.00 1.00 1667.00 110.8636 249.6726 62336.397

RATIO 66 .33 .67 1.00 .9691 5.398E-02 2.913E-03

CD 66 193182444.00 27556.00 193210000.00 35916698.1970 34788551.4771 1210243313871486.000 DISTANCE 66 13580.30 1881.07 15461.37 8956.2661 3142.4122 9874754.628 GDP 66 66.00 3.00 69.00 20.1818 14.2536 203.166 Valid N (listwise) 66

Table 8: Coefficients correlation of dataset 1 Correlations

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Table 9: Coefficients correlation of dataset 2 Correlations CD GDP DISTANCE Pearson Correlation 1.000 -.245(*) -.480(**) Sig. (2-tailed) . .048 .000 CD N 66 66 66 Pearson Correlation -.245(*) 1.000 .039 Sig. (2-tailed) .048 . .756 GDP N 66 66 66 Pearson Correlation -.480(**) .039 1.000 Sig. (2-tailed) .000 .756 . DISTANCE N 66 66 66

* Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed).

5.2. Regression results

In this section I will present the results of the regression analysis separately for the two models. In the following tables only the final results are presented. All the steps of the regression analysis can be found in the appendix of the study.

5.2.1. Model 1 – Home country data

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quite significant and will be explained later on in the study. The rest three cultural dimensions did not prove to have a serious effect on the success of M&As according to their significance values in the original model. The results of the regression analysis can be viewed in Table 11. Hypotheses H1a, H2a, H3a and H4a are rejected.

Table 10: Results of model 1 – Dependent Variable “Completion Ratio” Model Summary Change Statistics Model R R Square Adjusted R Square Std. Error of the Estimate R Square Change F Change df1 df2 Sig. F Change 1 .600(a) .360 .296 1028.5725 .360 5.633 6 60 .000

a Predictors: (Constant), POPUL, IDV, MAS, UAI, GDP, PDI

Model 1 STANDARDIZED COEFFICIENTS t SIGNIFICANCE PDI -0.032 -0.189 0.851 IDV 0.099 0.549 0.585 MAS 0.111 0.840 0.404 UAI -0.173 -1.288 0.203

Table 11: Results of model 1 – Dependent Variable “Successful M&As” Model Summary Change Statistics Model R R Square Adjusted R Square Std. Error of the Estimate R Square Change F Change df1 df2 Sig. F Change 1 .245(a) .060 -.034 4.469E-02 .060 .636 6 60 .701

a Predictors: (Constant), POPUL, IDV, MAS, UAI, GDP, PDI

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Regardless of the dependent variable in each case the results indicate that when examined separately the cultural dimensions apart from IDV, do not affect the success of M&As.

5.2.2. Model 2 – USA data

The results of the regression analysis indicate that no serious relationship between the completion ratio and the cultural distance index can be established. The significance of the model as seen on Table 12 is 0.417 so cultural distance does not seem to affect the success of M&As when the term success is defined using the completion ratio. Hypothesis H5b is thus rejected. On the other hand a very interesting result was generated after regressing the model using the numbers of total deals as the dependent variable. The results that can be found in the appendix of the paper indicate a negative and significant relationship between cultural and geographical distance and the numbers of total M&As. That means that the smaller the cultural and geographical distance between USA and the other countries the greater the numbers of deals in which the countries are engaging. The regression analysis generated results that indicate that the cultural distance index strongly affects the success of M&As and that there is a negative relationship between the two variables. As seen on Table 13, the standardized coefficient is -0.325 and the significance value is 0.019. The numbers of successful deals are increasing as cultural distance is decreasing. Thus, hypothesis H5a is accepted. In addition the results also demonstrate a strong relationship between the geographical distance and the numbers of successful M&As. These results can be found in the appendix of the paper. This relationship is also negative meaning that proximity is an important factor that most of the times positively affects the fate of a deal.

Table 12: Results of model 2 – Dependent Variable “Completion Ratio” Model Summary

Model R R Square Adjusted R

Square

Std. Error of the Estimate

2 .137(a) .019 -.029 5.475E-02

a Predictors: (Constant), GDP, DISTANCE, CD

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Table 13: Results of model 2 – Dependent Variable “Successful M&As” Model Summary

Model R R Square Adjusted R

Square

Std. Error of the Estimate

2 .432(a) .186 .147 230.5946

a Predictors: (Constant), GDP, DISTANCE, CD

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6. Conclusions

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on the country – level which would require for either a substantially smaller dataset or a larger period of time for research. Finally, a project including several of the used data and methods along with a more detailed and complicated statistical model and perhaps data on other kind of deals could prove to be a very promising and interesting one.

Table 14: The formed hypotheses and their status

HYPOTHESES STATUS

H1a: The higher the PD Index of the home country, the

higher the number of succeeded M&As.

Rejected H1b: The higher the PD Index of the home country, the

higher the number of succeeded M&As relative to the number of total M&As.

Rejected

H2a: The higher the IDV of the home country, the lower

the number of succeeded M&As. Rejected

H2b: The higher the IDV of the home country, the lower the number of succeeded M&As relative to the number of total M&As.

Rejected

H3a: The higher the UAI of the home country, the higher

the number of succeeded M&As. Rejected

H3b: The higher the UAI of the home country, the higher the number of succeeded M&As relative to the number of total M&As.

Rejected

H4a: The higher the MAS of the home country, the higher the number of succeeded M&As.

Rejected

H4b: The higher the MAS of the home country, the higher the number of succeeded M&As relative to the number of total M&As.

Rejected

H5a: The number of succeeded M&As of USA parent firms is higher the lower the cultural distance between USA and each country.

Accepted

H5b: The number of succeeded M&As relative to the number of total M&As of USA parent firms is higher the lower the cultural distance between USA and each country.

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7. Discussion

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