This study provides evidence on how takeover decisions are influenced by the target country’s leadership style. Using a sample of failed and completed deals across 45 countries from 1992 to 2015, we show that takeover likelihood and acquisition premiums are significantly related to the target country’s leadership style. Specifically, firms located in countries embedded with higher charismatic, participative or human-oriented leadership style are more likely to receive higher premiums and thus be potential targets. These effects are more pronounced in countries embedded with higher charismatic leadership style. This study points out the role of the target country’s leadership style, as a valuable asset, on the bidders’ decisions that could have a direct effect on the post-M&A outcomes. Our findings are robust to controls for alternative techniques and for selection bias.

Introduction

Mergers and acquisitions (M&As) represent today an increasingly important form of investment decisions to broaden new capabilities and knowledge, foster innovation, and enhance the overall performance through the organization. Before signing an M&A agreement to acquire a potential firm, the acquirer faces several important decisions inherent to the choice of a potential target and the premium offered. Such decisions are likely to be associated with the target’s information available to the bidders as the attractiveness of the target firm in terms of valuable assets and skills (Bena & Li, 2014). Besides the diverse array of former works on bidder’s takeover decisions, almost no scholarly attention has been devoted to the leadership style of the target country, since leadership style may signal important information to bidders to better select and evaluate the target. In this study, we address this issue by examining the role of target country’s leadership style, as valueenhancing information provided to the bidder, in explaining cross-country differences in acquisition decisions, especially, the takeover likelihood and acquisition premiums. Earlier researches suggest that mergers and acquisitions are often driven by the bidders’ desire to increase efficiency, enhance corporate learning or obtain the highly skilled human capital of the target companies (Graebner, 2004). When a bidder acquires a firm, he doesn’t only “acquire” the target’s financial resources but also its knowledge resources (Ranft and Lord, 2002). Bidders may seek to obtain the in-depth skills and expertise of the employees or of specific managerial person in the target firm (Ranft and Lord, 2002). The human capital of the target firm represents valuable assets for the bidder but can also distract the bidder from its own objectives to pursue successful integration and higher performance (Schuler & Jackson, 2001). Based upon the study carried out by the Society for Human Resource Management (SHRM), 70% of M&As failed because of HR-related factors (leadership style, poor motivation, loss of key talents….). Effective integration demands a substantial commitment of the managerial resources of the target firm (Graebner, 2004) and the implementation of an effective leadership that could be the driver of human elements (commitment to change, organizational and cultural integration) during M&A process (Waldman & Javidan, 2009).