IDEAS home Printed from https://ideas.repec.org/a/eee/empfin/v81y2025ics0927539825000040.html
   My bibliography  Save this article

Social connectedness and cross-border mergers and acquisitions

Author

Listed:
  • Jiang, Zhonghao
  • Shi, Yukun
  • Xing, Lu

Abstract

We investigate the role of social connectedness in cross-border mergers and acquisitions (M&As) using the Facebook social connectedness index. We show that stronger social connectedness between countries leads to higher announcement returns for acquirers in cross-border M&As. This effect is attributed to improved information dissemination, which reduces target premiums, increases deal completion likelihood, and supports acquirers to achieve long-term success. Furthermore, social connectedness increases the frequency and dollar value of cross-border M&As between countries. This relation is weaker for countries in the same customs union, but stronger in the presence of greater political disagreement or significant time zone differences. Extending our analysis to domestic M&As in the U.S., we find that social connectedness between the headquarters’ cities of acquirers and targets improves acquirers’ announcement returns.

Suggested Citation

  • Jiang, Zhonghao & Shi, Yukun & Xing, Lu, 2025. "Social connectedness and cross-border mergers and acquisitions," Journal of Empirical Finance, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:empfin:v:81:y:2025:i:c:s0927539825000040
    DOI: 10.1016/j.jempfin.2025.101582
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927539825000040
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jempfin.2025.101582?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Michael Bailey & Drew Johnston & Theresa Kuchler & Dominic Russel & Bogdan State & Johannes Stroebel, 2020. "Online Appendix & Additional Results for The Determinants of Social Connectedness in Europe," Papers 2007.12177, arXiv.org.
    2. Stein, Ernesto & Daude, Christian, 2007. "Longitude matters: Time zones and the location of foreign direct investment," Journal of International Economics, Elsevier, vol. 71(1), pages 96-112, March.
    3. Theresa Kuchler & Yan Li & Lin Peng & Johannes Stroebel & Dexin Zhou, 2022. "Social Proximity to Capital: Implications for Investors and Firms," The Review of Financial Studies, Society for Financial Studies, vol. 35(6), pages 2743-2789.
    4. Robert M. Bushman & Joseph D. Piotroski & Abbie J. Smith, 2004. "What Determines Corporate Transparency?," Journal of Accounting Research, Wiley Blackwell, vol. 42(2), pages 207-252, May.
    5. Lauren Cohen & Andrea Frazzini & Christopher Malloy, 2008. "The Small World of Investing: Board Connections and Mutual Fund Returns," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 951-979, October.
    6. Desislava Dikova & Padma Rao Sahib & Arjen van Witteloostuijn, 2010. "Cross-border acquisition abandonment and completion: The effect of institutional differences and organizational learning in the international business service industry, 1981–2001," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(2), pages 223-245, February.
    7. Renneboog, Luc & Zhao, Yang, 2014. "Director networks and takeovers," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 218-234.
    8. Laurence Capron & Jung‐Chin Shen, 2007. "Acquisitions of private vs. public firms: Private information, target selection, and acquirer returns," Strategic Management Journal, Wiley Blackwell, vol. 28(9), pages 891-911, September.
    9. Luong, Thanh Son & Qiu, Buhui & Wu, Yi (Ava), 2021. "Does it pay to be socially connected with wall street brokerages? Evidence from cost of equity," Journal of Corporate Finance, Elsevier, vol. 68(C).
    10. Hwang, Byoung-Hyoun & Kim, Seoyoung, 2009. "It pays to have friends," Journal of Financial Economics, Elsevier, vol. 93(1), pages 138-158, July.
    11. Michael Bailey & Eduardo Dávila & Theresa Kuchler & Johannes Stroebel, 2019. "House Price Beliefs And Mortgage Leverage Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(6), pages 2403-2452.
    12. Li, Lin & Tong, Wilson H.S., 2018. "Information uncertainty and target valuation in mergers and acquisitions," Journal of Empirical Finance, Elsevier, vol. 45(C), pages 84-107.
    13. Bilei Zhou & Jie (Michael) Guo & Jun Hua & Angelos J. Doukas, 2015. "Does State Ownership Drive M&A Performance? Evidence from China," European Financial Management, European Financial Management Association, vol. 21(1), pages 79-105, January.
    14. Julian Birkinshaw & Henrik Bresman & Lars Håkanson, 2000. "Managing the Post‐acquisition Integration Process: How the Human Iintegration and Task Integration Processes Interact to Foster Value Creation," Journal of Management Studies, Wiley Blackwell, vol. 37(3), pages 395-425, May.
    15. Michael Bailey & Rachel Cao & Theresa Kuchler & Johannes Stroebel & Arlene Wong, 2018. "Social Connectedness: Measurement, Determinants, and Effects," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 259-280, Summer.
    16. Shiu-Yik Au & Ming Dong & Xinyao Zhou, 2024. "Does Social Interaction Spread Fear Among Institutional Investors? Evidence from Coronavirus Disease 2019," Management Science, INFORMS, vol. 70(4), pages 2406-2426, April.
    17. Nguyen, Giang & Nguyen, My & Pham, Anh Viet & Pham, Man Duy (Marty), 2023. "Navigating investment decisions with social connectedness: Implications for venture capital," Journal of Banking & Finance, Elsevier, vol. 155(C).
    18. Francis, Bill B. & Hasan, Iftekhar & Sun, Xian & Waisman, Maya, 2014. "Can firms learn by observing? Evidence from cross-border M&As," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 202-215.
    19. Ferris, Stephen P. & Javakhadze, David & Rajkovic, Tijana, 2017. "CEO social capital, risk-taking and corporate policies," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 46-71.
    20. Isil Erel & Rose C. Liao & Michael S. Weisbach, 2012. "Determinants of Cross‐Border Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 67(3), pages 1045-1082, June.
    21. Rossi, Stefano & Volpin, Paolo F., 2004. "Cross-country determinants of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 74(2), pages 277-304, November.
    22. Javakhadze, David & Ferris, Stephen P. & French, Dan W., 2016. "Social capital, investments, and external financing," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 38-55.
    23. Antonios Siganos & Isaac T. Tabner, 2020. "Capturing the role of societal affinity in cross-border mergers with the Eurovision Song Contest," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(2), pages 263-273, March.
    24. Martynova, Marina & Renneboog, Luc, 2009. "What determines the financing decision in corporate takeovers: Cost of capital, agency problems, or the means of payment?," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 290-315, June.
    25. Kevin K. Boeh, 2011. "Contracting Costs and Information Asymmetry Reduction in Cross‐Border M&A," Journal of Management Studies, Wiley Blackwell, vol. 48(3), pages 568-590, May.
    26. Ross Levine & Chen Lin & Beibei Shen, 2020. "Cross-border acquisitions: Do labor regulations affect acquirer returns?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(2), pages 194-217, March.
    27. Francis, Bill B. & Hasan, Iftekhar & Sun, Xian & Waisman, Maya, 2014. "Can firms learn by observing? Evidence from cross-border M&As," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 202-215.
    28. Mark J. Garmaise & Gabriel Natividad, 2013. "Cheap Credit, Lending Operations, and International Politics: The Case of Global Microfinance," Journal of Finance, American Finance Association, vol. 68(4), pages 1551-1576, August.
    29. Antonio Marra & Angela Pettinicchio & Ron Shalev, 2024. "Home Sweet Home: CEOs Acquiring Firms in Their Birth Countries," Journal of Accounting Research, Wiley Blackwell, vol. 62(4), pages 1363-1404, September.
    30. Huberman, Gur, 2001. "Familiarity Breeds Investment," The Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-680.
    31. John D. Lyon & Brad M. Barber & Chih‐Ling Tsai, 1999. "Improved Methods for Tests of Long‐Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, February.
    32. Ahern, Kenneth R. & Daminelli, Daniele & Fracassi, Cesare, 2015. "Lost in translation? The effect of cultural values on mergers around the world," Journal of Financial Economics, Elsevier, vol. 117(1), pages 165-189.
    33. Giang Nguyen & My Nguyen & Anh Viet Pham & Man Duy Marty Pham, 2023. "Navigating investment decisions with social connectedness : Implications for venture capital," Post-Print hal-04325756, HAL.
    34. Bailey, Michael & Gupta, Abhinav & Hillenbrand, Sebastian & Kuchler, Theresa & Richmond, Robert & Stroebel, Johannes, 2021. "International trade and social connectedness," Journal of International Economics, Elsevier, vol. 129(C).
    35. Cai, Ye & Sevilir, Merih, 2012. "Board connections and M&A transactions," Journal of Financial Economics, Elsevier, vol. 103(2), pages 327-349.
    36. Uysal, Vahap B. & Kedia, Simi & Panchapagesan, Venkatesh, 2008. "Geography and acquirer returns," Journal of Financial Intermediation, Elsevier, vol. 17(2), pages 256-275, April.
    37. Huang, Peng & Officer, Micah S. & Powell, Ronan, 2016. "Method of payment and risk mitigation in cross-border mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 216-234.
    38. Olivier Bertrand & Marie-Ann Betschinger & Alexander Settles, 2016. "The relevance of political affinity for the initial acquisition premium in cross-border acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 37(10), pages 2071-2091, October.
    39. repec:bla:jfinan:v:59:y:2004:i:1:p:137-163 is not listed on IDEAS
    40. Michael Bailey & Theresa Kuchler & Dominic Russel & Bogdan State & Johannes Stroebel, 2020. "The Determinants and Effects of Social Connectedness in Europe," CESifo Working Paper Series 8310, CESifo.
    41. Gary Gorton & Matthias Kahl & Richard J. Rosen, 2009. "Eat or Be Eaten: A Theory of Mergers and Firm Size," Journal of Finance, American Finance Association, vol. 64(3), pages 1291-1344, June.
    42. Michael Bailey & Ruiqing Cao & Theresa Kuchler & Johannes Stroebel, 2018. "The Economic Effects of Social Networks: Evidence from the Housing Market," Journal of Political Economy, University of Chicago Press, vol. 126(6), pages 2224-2276.
    43. Aleksanyan, Mark & Hao, Zhiwei & Vagenas-Nanos, Evangelos & Verwijmeren, Patrick, 2021. "Do state visits affect cross-border mergers and acquisitions?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    44. Lim, Jongha & Makhija, Anil K. & Shenkar, Oded, 2016. "The asymmetric relationship between national cultural distance and target premiums in cross-border M&A," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 542-571.
    45. repec:zbw:bofrdp:2014_017 is not listed on IDEAS
    46. Hu, Nan & Li, Lu & Li, Hui & Wang, Xing, 2020. "Do mega-mergers create value? The acquisition experience and mega-deal outcomes," Journal of Empirical Finance, Elsevier, vol. 55(C), pages 119-142.
    47. repec:bla:jomstd:v:37:y:2000:i::p:395-425 is not listed on IDEAS
    48. Travlos, Nickolaos G, 1987. "Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns," Journal of Finance, American Finance Association, vol. 42(4), pages 943-963, September.
    49. Alexandridis, George & Fuller, Kathleen P. & Terhaar, Lars & Travlos, Nickolaos G., 2013. "Deal size, acquisition premia and shareholder gains," Journal of Corporate Finance, Elsevier, vol. 20(C), pages 1-13.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    2. Kuchler, Theresa & Russel, Dominic & Stroebel, Johannes, 2022. "JUE Insight: The geographic spread of COVID-19 correlates with the structure of social networks as measured by Facebook," Journal of Urban Economics, Elsevier, vol. 127(C).
    3. Guo, Jie & Li, Xi & Seeger, Nicolas Cisternas & Vagenas-Nanos, Evangelos, 2019. "Social connections, reference point and acquisition premium," The British Accounting Review, Elsevier, vol. 51(1), pages 46-71.
    4. Alexandridis, George & Hoepner, Andreas G.F. & Huang, Zhenyi & Oikonomou, Ioannis, 2022. "Corporate social responsibility culture and international M&As," The British Accounting Review, Elsevier, vol. 54(1).
    5. Diemer, Andreas & Regan, Tanner, 2022. "No inventor is an island: Social connectedness and the geography of knowledge flows in the US," Research Policy, Elsevier, vol. 51(2).
    6. Xie, En & Reddy, K.S. & Liang, Jie, 2017. "Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 52(2), pages 127-183.
    7. Bailey, Michael & Gupta, Abhinav & Hillenbrand, Sebastian & Kuchler, Theresa & Richmond, Robert & Stroebel, Johannes, 2021. "International trade and social connectedness," Journal of International Economics, Elsevier, vol. 129(C).
    8. Zhang, Jennifer, 2024. "Social proximity to capital and mortgage lending," Finance Research Letters, Elsevier, vol. 70(C).
    9. Bailey, Michael & Farrell, Patrick & Kuchler, Theresa & Stroebel, Johannes, 2020. "Social connectedness in urban areas," Journal of Urban Economics, Elsevier, vol. 118(C).
    10. Jing, Wei & Zhang, Xueyong, 2021. "Online social networks and corporate investment similarity," Journal of Corporate Finance, Elsevier, vol. 68(C).
    11. Liu, Chenxi & Kang, Mengyao, 2025. "Director overseas experience and cross-border acquisitions: Evidence from China," Research in International Business and Finance, Elsevier, vol. 75(C).
    12. Hussain, Tanveer & Tunyi, Abongeh A. & Sufyan, Muhammad & Shahab, Yasir, 2022. "Powerful bidders and value creation in M&As," International Review of Financial Analysis, Elsevier, vol. 81(C).
    13. Kalanoski, Dimitrija & Cappa, Francesco & Pinelli, Michele & Bonardi, Jean-Philippe, 2025. "The Impact of International Mergers and Acquisitions on Rivals’ Performance: The Role of Formal and Informal Institutions," Journal of World Business, Elsevier, vol. 60(3).
    14. Michael Bailey & Drew Johnston & Martin Koenen & Theresa Kuchler & Dominic Russel & Johannes Stroebel, 2022. "The Social Integration of International Migrants: Evidence from the Networks of Syrians in Germany," CESifo Working Paper Series 9680, CESifo.
    15. Ahmad, Muhammad Farooq & Lambert, Thomas & Martín-Flores, José M. & Romec, Arthur, 2024. "Does democracy shape international merger activity?," Journal of International Economics, Elsevier, vol. 152(C).
    16. Cramer, Kim Fe & Koont, Naz, 2021. "Peer effects in deposit markets," LSE Research Online Documents on Economics 119192, London School of Economics and Political Science, LSE Library.
    17. Nguyen, Giang & Nguyen, My & Pham, Anh Viet & Pham, Man Duy (Marty), 2023. "Navigating investment decisions with social connectedness: Implications for venture capital," Journal of Banking & Finance, Elsevier, vol. 155(C).
    18. Chen, Yenn-Ru & Huang, Yu-Lin & Chang, Ting-Yu, 2024. "Gender culture and cross-border mergers and acquisitions: The deals with RCEP targets," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    19. Jackowicz, Krzysztof & Kozłowski, Łukasz, 2019. "Social ties between SME managers and bank employees: Financial consequences vs. SME managers' perceptions," Emerging Markets Review, Elsevier, vol. 40(C), pages 1-1.
    20. Gada, Viswa Prasad & Goyal, Lakshmi & Popli, Manish, 2021. "Earnouts in M&A deal structuring: The impact of CEO prevention focus," Journal of International Management, Elsevier, vol. 27(1).

    More about this item

    Keywords

    Social connectedness; Cross-border M&As; Information dissemination;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:empfin:v:81:y:2025:i:c:s0927539825000040. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jempfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.