Does country – level corruption distance affect cross-border acquisitions ?

Using a large international sample of 351244 acquisitions over the period from 1980 to 2014, we find strong evidence that corruption distance affect cross-border acquisition (CBA) volume, long-run operating performance and ownership structure of the foreign acquirer. We ground our arguments on the capability-transfer theory and transaction cost economics to show that higher cross-border acquisition activity is associated with greater corruption distance. We also find that cross-border deals deliver negative post-acquisition performance in the long-run and to subdue the risk associated with corruption distance, low – corrupt acquirers own a higher level of equity ownership in the foreign targets. On examining the factors that attenuate the effect of corruption distance on foreign control, we find that as corruption distance between acquirer and target increases, acquirers assume higher equity control in the related acquisitions than un-related acquisitions. We find that toeholds and prior cross-border experience of acquirer doesn’t scale down the adverse selection and moral hazards caused by corruption distance. Results of this study are the first large scale evidence to show that corruption distance have a robust and substantial impact on different aspects of cross-border acquisitions.  * Corresponding author THENMOZHI. M Professor, Indian Institute of Technology Madras, Sardar Patel Road, , Adyar, Chennai 600036 Email: mtm@iitm.ac.in CHINMOY GHOSH Professor, Department of Finance School of Business University of Connecticut Storrs, CT 06268 Email: Chinmoy.Ghosh@business.uconn.edu CHAMU SUNDARAMURTHY Professor, SDSU College of Business Administration, San Diego state University, 5500 Campanile Dr, San Diego, CA 92182 Email: csundara@mail.sdsu.edu SHYAAM PRASADH R* Doctoral Research Scholar, Indian Institute of Technology Madras, Sardar Patel Road, , Adyar, Chennai 600036 Email: shyaam.sishil@gmail.com NARAYAN. P.C Professor, Indian Institute of Management Bangalore Bannerghatta Road, Bengaluru, Karnataka 560076 Email: pcn@iimb.ernet.in