Determinants of Successful Cross-Border Mergers and Acquisitions

Abstract

This study investigates the impact of payment methods on the performance of cross-border mergers and acquisitions (M&As) initiated by U.S.-based acquiring firms. While existing literature provides mixed evidence on whether stock- or cash-financed deals yield superior outcomes, this study systematically evaluates the effect of financing choice on short-term market reactions, long-term operating performance, and long-term abnormal stock returns. Using a sample of 4,937 completed M&A transactions from 2000 to 2020, the analysis employs cumulative abnormal returns (CARs) to capture immediate investor responses, an intercept model of benchmark-adjusted cash flow returns to measure operational outcomes, and value-weighted buy-and-hold abnormal returns (BHARs) to assess post-acquisition stock performance.

The findings do not support the hypothesis that stock-financed cross-border acquisitions outperform cash-financed ones. Instead, cash-financed deals - especially those involving foreign targets - are associated with stronger short-term CARs and more favorable long-term operating performance. Moreover, stock-financed cross-border transactions exhibit significant underperformance in post-deal stock returns, with a BHAR of -51.5 percent over three years. These results suggest that investor skepticism toward stock-financed international deals may be warranted, and that liquidity strength and transaction certainty remain central to deal success.

By focusing exclusively on U.S. acquirers and combining market-based and accounting-based methodologies, the study contributes to a more nuanced understanding of how financing strategies affect acquisition outcomes in cross-border contexts. The results offer practical implications for corporate decision-makers and institutional investors evaluating the long-term viability of international expansion strategies.