Corporate Ownership and International Mergers and Acquisitions*

Jan Bena University of British Columbia† Kai Li University of British Columbia‡ First version: November, 2012 This version: December, 2012

Abstract This paper employs a novel dataset of mergers and acquisitions (M&As) for which we can observe ownership structure of a target firm including the identity of its ultimate owner if there is any, and its country of origin. As a result, we are able to improve the traditional definition of cross-border deals by taking into account the domiciles of a target firm, its ultimate owner, and the acquirer. Using dispersedlyowned target firms as the baseline, we examine whether and how different types of owners in target firms—individual(s)/family, industrial, financial, and government—as well as their domicile affect the incidence of international M&As. We find that both individual(s)/family and government target firm owners are negatively associated with the incidence of international M&As; while foreign domicile of target firm owners is positively associated with the incidence of international M&As. The interaction between the type of target firm ultimate owner and its domicile reinforces the above findings. We also examine to what extent target firm characteristics such as size and age, the recent financial crisis, and geographic, sociological, and cultural proximities impact the incidence of international M&As. We conclude that corporate ownership is an important determinant of international M&As. Keywords: international mergers and acquisitions, domestic deals, cross-border deals, ownership structure, ultimate owner, geography, culture JEL classification: G34

We thank Andrew Ellul, Isil Erel, Rose Liao, Pedro Matos, and Mike Weisbach for sharing their data on countrylevel variables, and Keith Head for helpful comments. We thank Chang Jie Hu, Ale Medina, and Ting Xu for excellent research assistance. We acknowledge the financial support from the Social Sciences and Humanities Research Council of Canada (SSHRC). All remaining errors are our own. † Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC V6T 1Z2, 604.822.8490, jan.bena@sauder.ubc.ca. ‡ Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC V6T 1Z2, 604.822.8353, kai.li@sauder.ubc.ca.

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Corporate Ownership and International Mergers and Acquisitions
Abstract This paper employs a novel dataset of mergers and acquisitions (M&As) for which we can observe ownership structure of a target firm including the identity of its ultimate owner if there is any, and its country of origin. As a result, we are able to improve the traditional definition of cross-border deals by taking into account the domiciles of a target firm, its ultimate owner, and the acquirer. Using dispersedlyowned target firms as the baseline, we examine whether and how different types of owners in target firms—individual(s)/family, industrial, financial, and government—as well as their domicile affect the incidence of international M&As. We find that both individual(s)/family and government target firm owners are negatively associated with the incidence of international M&As; while foreign domicile of target firm owners is positively associated with the incidence of international M&As. The interaction between the type of target firm ultimate owner and its domicile reinforces the above findings. We also examine to what extent target firm characteristics such as size and age, the recent financial crisis, and geographic, sociological, and cultural proximities impact the incidence of international M&As. We conclude that corporate ownership is an important determinant of international M&As. Keywords: international mergers and acquisitions, domestic deals, cross-border deals, ownership structure, ultimate owner, geography, culture JEL classification: G34

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The process of globalization has inspired a growing literature that examines drivers of cross-border mergers and acquisitions (M&As) where the acquirer and the target firm reside in different countries, a major component of foreign direct investment.1 While much effort is devoted to explaining the volume and direction of aggregate M&A flows between countries, our understanding of what determines whether a particular firm participates in a cross-border transaction remains limited. In this paper, we employ a novel dataset of M&A transactions that involves target firms for which we can observe the details of their ownership structure—the identity of their ultimate owners or whether their ownership structure is dispersed. Using target firms with dispersed ownership as the baseline, we examine whether and how different types of ultimate owners—individual(s)/family, industrial, financial, and government—as well as their domicile affect the likelihood of a cross-border M&A transaction occurring whereby the target firm and the acquirer have different countries of incorporation. We show that target firms’ ownership structure drives incidence of cross-border transactions at the micro-level, contributing to the literature on cross-border M&As (see, for example, Ferreira, Massa, and Matos (2010), Ahern, Daminelli, and Fracassi (2012), and Erel, Liao, and Weisbach (2012)). Furthermore, our ownership data allow us to define international M&As from the perspective of target firms’ ultimate owners: “genuine domestic” M&As occur when the target firm, its ultimate owner, and the acquirer reside in the same country, and different types of “international” M&As occur where at least two of the three entities reside in different countries. We show how ownership structures are conducive to different types of international M&As, highlighting the importance of accounting for heterogeneity in international M&As that has been overlooked so far. Using the sample of 19,482 M&A transactions over the period 2002-2011—of which 25% are cross-border (using the traditional definition; while 34% are international using our definition above)— with information on target firms’ ownership structure, we ask the following research questions: Is the participation in international versus domestic M&As driven by target firm characteristics? What target firms’ ownership structure characteristics affect the incidence of international versus domestic M&As?

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Possible explanations for cross-border M&As include: 1) imperfections and information asymmetries in capital markets (Baker, Foley, and Wurgler (2009), and Erel, Liao, and Weisbach (2011)); 2) differences in regulatory policies and corporate governance (Rossi and Volpin (2004), Bris and Cabolis (2008), Chari, Ouimet, and Tesar (2009), and Huizinga and Voget (2009)); and 3) imperfections and costs in product or factor markets (Antràs, Desai, and Foley (2009), and Chari, Ouimet, and Tesar (2009)).

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How formal and informal institutional factors such as economic development and geographic and cultural proximities, that were documented to be important at the aggregate level, interact with ownership structure characteristics in affecting the likelihood of international M&As occurring? To answer these questions, we compile a large unique dataset of international M&As for which we collect detailed information on ownership structure of target firms as of the time prior to each deal. We distinguish target firms with dispersed ownership from those that have controlling blockholders— ultimate owners. We classify firms by their ultimate owner type into individual(s)/family, industrial, financial, and government, as well as ascertain whether their ultimate owner is domestic or foreign with respect to a target firm’s country of incorporation. Our sample covers European target firms from 32 different countries whose ultimate owners reside in 77 countries around the world. The acquirers of these European target firms come from 79 countries. Our paper’s findings thus have implications for international M&A activities in general. We first show that among the traditionally defined domestic deals (i.e., the target firm and the acquirer have the same country of incorporation) where the target firms have ultimate owners, about a quarter of the deals involve an ultimate owner residing outside the country of incorporation of the target firm. On the other hand, among the traditionally defined cross-border deals (i.e., the target firm and the acquirer come from different countries) where the target firms have ultimate owners, about 30% of the deals involve an ultimate owner residing in the same country as is the country of incorporation of the acquirer. Using the dispersedly-owned target firms as the baseline group, we find that the domicile of the target firm’s ultimate owner matters: The presence of an owner that is foreign with respect to the target firm is positively associated with the incidence of an international deal; while the presence of a domestic owner is negatively associated with the incidence of an international deal. Moreover, the presence of an individual(s)/family owner is negatively associated with the incidence of an international deal, so is the government ownership. The interaction between the domicile of a target firm’s ultimate owner and its type reinforces the above findings. When examining the effects of industrial and financial ultimate owners on the incidence of international deals, we show that target firms with either domestic industrial or domestic financial owners 3

are more likely than those with domestic government owners to participate in international deals, highlighting the presence of government owners’ “economic nationalism” of Erel and Dinc (2012). By contrast, when compared to foreign government owners, we show that neither foreign industrial nor foreign financial owners have any differential effect on the incidence of international deals. So far, we have established that both the domicile and type of target firms’ ultimate owners matter for the incidence of international deals defined using the target firm’s and acquirer’s countries of incorporation. Next, we study whether different types of target firms’ foreign ultimate owners lead to incidences of different types of international deals. We show that, compared to target firms with foreign government owners, target firms with either foreign industrial or foreign financial owners are less likely to participate in international deals where the acquirer’s country of origin is the same as that of the target firm’s ultimate owner. In contrast, compared to target firms with foreign government owners, target firms with either foreign industrial or foreign financial owners are more likely to participate in international deals where the acquirer’s country of origin is different from that of the target firm’s ultimate owner. In a nutshell, while government owners are more likely to pursue “indirect” domestic deals, industrial and financial owners are more likely to engage in “genuine” international deals. Finally, using country-level data, we show that owner domicile and type of the largest firms in the target firm country is significantly associated with the likelihood of international deals occurring in the target country in the same way as we observe at the deal level. Once we have established the importance of corporate ownership for international M&As, we examine the mechanism through which it operates. At the firm level, we examine to what extent target firm characteristics such as size and age interact with target firms’ ownership structures in affecting the incidence of international M&As. We show that size and age mitigate the role individual(s)/family, industrial, and financial owners play in the incidence of international deals. At the macro level, we examine to what extent the recent financial crisis changes the role of target firm ownership in international deals. We show that the financial crisis mitigates the role of target firm owner domicile and type in the incidence of international deals. At the country level, we show that geographic and sociological proximities affect the volume of international deals involving target firms with government owners, and that cultural distance mainly affects the volume of international deals 4

involving target firms with individual(s)/family owners. These findings remain after controlling for bilateral trade, currency returns and volatility, and the acquirer-target-country differences in economic and financial market development. Our paper contributes to the M&A literature in the following dimensions. First, we have one of the most detailed databases on ownership structure of target firms in an international M&A setting, and we are thus able to classify M&As in a novel way using the country of origin of the target firm’s ultimate owner. This classification leads us to distinguish different types of international deals and separately examine drivers of each deal type. Second, our sample contains a large number of international M&As involving closely held private firms, which have not been examined before, in large part due to a lack of micro-level ownership data. Our finding that there is a domestic bias among individual(s)/familycontrolled firms as they tend not to sell abroad have important policy implications to governments in fostering entrepreneurship and in supporting family business. Third, by comparing the likelihood of incidence of international deals involving target firms with non-government owners to that with government owners, our paper sheds light on whether “economic nationalism” is a feature unique to transactions between state-owned firms or is a broad phenomenon affecting all types of owners. The paper proceeds as follows. We review the related literature and develop our hypotheses in the next section. We describe our sample and the construction of key variables in Section II. We examine the incidence of international M&As at the deal level in Section III. We further examine the incidence of international M&As at the country level in Section IV. We conclude in Section V.

I. Literature Review and Hypothesis Development In this section, we first review the literature on cross-border M&As. We then develop our hypotheses focusing on how corporate ownership structure might influence international M&A transactions.

I.A. Prior Literature on Cross-Border M&As One strand of the cross-border M&A literature focuses on understanding the effects of countrylevel economic and institutional factors on aggregate cross-border M&A flows. Di Giovanni (2005) 5

shows that firms in countries with developed stock markets acquire abroad. He also shows that bilateral trade is positively, and geographical distance is negatively, associated with cross-border M&A volume between countries. Erel et al. (2012) show that differential stock market valuation and currency movements affect the likelihood of M&As between two countries, controlling for geography, bilateral trade, and institutional factors. Rossi and Volpin (2004) find that target firms in cross-border M&A deals are more frequently coming from countries with weaker investor protection than their acquirers’ countries, suggesting a convergence in governance standards. Supporting this finding, Starks and Wei (2004) and Bris and Cabolis (2008) document a higher takeover premium when investor protection in the acquirer’s country is stronger than in the target firm’s country; and Chari, Ouimet, and Tesar (2010) find that when a developed-country multinational firm acquires an emerging market firm, there is an economically large increase in the acquiring firm’s stock price. Desai, Foley, and Forbes (2008), PérezGonzález (2010), and Chari, Chen, and Dominguez (2012) provide empirical evidence of the benefits of unimpeded foreign ownership. In summary, this strand of the literature suggests that geographical proximity, bilateral trade, financial development, and governance are important determinants of crossborder M&As, consistent with the efficiency perspective of mergers. The second strand of the cross-border M&A literature examines the role of informal institutions in cross-border M&A transactions. Guiso, Sapienza, and Zingales (2009) and Bottazzi, Da Rin, and Hellmann (2012) show that trust is an important factor behind international trade and investments by using macro-level and venture capital investment data, respectively.2 In the cross-border M&A setting, Siegel, Licht, and Schwartz (2011) show that the distance in egalitarianism influences cross-national flows of capital and M&As. Ahern et al. (2012) find that the volume of cross-border M&As is smaller when countries are more culturally distant and that firms from countries that are more trusting capture a larger share of combined merger gains. Using hand-collected data on government reactions to the biggest merger attempts within European countries, Dinc and Erel (2012) show that governments of target firms respond negatively to cross-border M&A transactions, encouraging these firms to remain domestically owned rather than foreign owned. They find that this “economic nationalism” by governments is stronger
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Earlier work has shown that local shareholders prefer local shares or are less likely to entertain cross-border deals due to familiarity bias (e.g., distance, culture, and language) (Coval and Moskowitz (1999) and Grinblatt and Keloharju (2001)). Furthermore, Gupta and Yu (2009) show that bilateral capital flows reflect bilateral political relations, and Morse and Shive (2010) find that country-level patriotism is significantly related to the home equity bias.

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against acquirers from countries for which citizens in the countries of target firms have little trust or affinity. Dinc and Erel (2012) show that government nationalism lowers the likelihood of cross-border transaction incidence as it lowers the probability of deal completion and deters foreign companies from bidding for other firms in the target country in the future. Our project is most closely related to Ferreira et al. (2010), one of the first papers examining the importance of corporate ownership structures in cross-border M&As, in particular the role of institutional investors. Ferreira et al. (2010) find that foreign institutional ownership increases the probability that a merger deal is cross-border, successful, and the acquirer takes full control of the target firm. Their findings suggest that foreign institutional investors act as facilitators in the international market for corporate control by reducing transaction costs and information asymmetry between public acquirers and public target firms. Different from Ferreira et al. (2010), we employ a sample of cross-border transactions involving primarily private companies and we have detailed ownership data, not limited to institutional shareholdings, that allows us more accurately to classify domestic versus international deals.

I.B. Hypotheses In our data, we distinguish target firms by their ownership structure into being ultimately controlled by individual(s)/family, another industrial firm, financial institutions, and government. We also know whether a target firm is dispersedly owned, and hence has no ultimate controlling owner. Coval and Moskowitz (1999) and Grinblatt and Keloharju (2001) show that individual investors are subject to familiarity bias: They prefer local stocks to distant stocks. Along the same line, we expect that domestic owners of target firms have biases for domestic deals due to their familiarity. In contrast, foreign owners may help reduce information asymmetry and play a certification role about the target firms with respect to other foreign owners, similar to investment banks in IPOs. The above discussion leads to our first two hypotheses: H1: Compared to dispersedly-owned target firms, the presence of domestic (foreign) owners in target firms is negatively (positively) associated with the incidence of international M&As. H2: Compared to dispersedly-owned target firms, the presence of individual(s)/family owners in target firms is negatively associated with the incidence of international M&As.

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Ferreira et al. (2010) examine how two forms of international capital flows—cross-border portfolio investment and cross-border M&As interact, and show that foreign institutional (financial) owners facilitate cross-border M&A transactions. We expect that financial owners in general, and foreign financial owners in particular, are more open to foreign takeovers than other types of owners such as individual(s)/family or industrial firms for the following reasons. First, financial institutions are more finance-savvy and hence are able to maintain a strong bargaining power in dealing with foreign acquirers. Second, these financial owners are controlling shareholders, so their presence addresses the free-rider problem typical in private firms with many shareholders (Grossman and Hart (1980), and Shleifer and Vishny (1986)). Third, foreign financial owners reduce the information asymmetry between target firms and foreign acquirers. The above discussion leads to our third hypothesis: H3: Compared to dispersedly-owned target firms, the presence of financial owners in target firms is positively associated with the incidence of international M&As. The effect is strengthened for foreign financial owners. Dinc and Erel (2012) show that governments respond negatively to M&A bids by foreign acquirers for domestic targets. They also find that governments of target firms are less likely to show negative reactions toward acquirers from countries whose citizens enjoy a higher level of trust by citizens in target countries. Our next two hypotheses thus are: H4: Compared to dispersedly-owned target firms, government ownership in target firms is negatively associated with the incidence of international M&As. The effect is weakened for foreign government ownership. H5: The effect of bilateral trust on the incidence of international M&As involving target firms with government ownership is positive. Siegel et al. (2011) and Ahern et al. (2012) find that the volume of cross-border M&As is smaller between countries that are more culturally distant. North (1993) argues that individuals embody the informal institutional constraints of their culture of origin as reflected in customs, traditions, and codes of conduct. Extending this argument to international M&As, we expect that cultural distance matters in cases where the target firm has individual(s)/family owners, but not in cases with other types of owners. The above discussion leads to our final hypothesis:

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H6: The effect of cultural distance on the incidence of international M&As involving target firms with individual(s)/family owners is negative. In our empirical investigation, we test these hypotheses and also attempt to control for some of the alternative explanations for why and how international M&As take place. In next section we describe our data, define key variables, and present summary statistics.

II. Sample Formation and Key Variable Definitions II.A. Data Sources Our sample of M&A deals is obtained from Zephyr, the international database on ownership changes compiled by the Bureau van Dijk (BvD). Compared to other M&A databases such as the Thomson Financial’s SDC database, the primary advantage of Zephyr is that there is a unique firm identifier that allows precise linking of merger participants reported in Zephyr to firms covered by other BvD databases such as Amadeus and Orbis. All these three BvD databases cover both private and public firms; in many European countries the BvD coverage is representative of the population of firms as reported in the national census. The Amadeus database contains ownership and harmonized financial data on around 19 million private and public companies spanning all industries in 38 European countries available starting 2002. BvD collects the data from about 50 vendors across Europe (e.g., company registrars of national statistical offices, credit registries, stock exchanges, and regulatory filings). The Orbis database contains ownership and harmonized financial data on public and private companies around the world available starting 2005. To collect firms’ ownership information and financials, we combine multiple data updates of both the Amadeus and Orbis databases. A firm appears in Amadeus/Orbis as long as it files its financial statements, and it remains in the database only for four more years after its last filing. Further, each update of the Amadeus/Orbis databases only contains, for each firm, the latest ownership information known to BvD as of the time the data update is issued. Because we want to take a snapshot of corporate ownership structure of a target firm at a point in time that is as close as possible prior to the announcement of the bid, we combine the updates of the Amadeus database released in May 2001, May 9

2002, July 2003, May 2004, October 2005, September 2006, and May 2007 with more recent updates of the Amadeus database downloaded from WRDS in July 2007, April 2008, August 2009, February 2010, and November 2010. Furthermore, we include updates of the Orbis database released in November 2008 and June 2011. About a quarter of our data comes from the Orbis database. In this way, we are able to add back firms deleted from more recent updates—which eliminates the survivorship bias inherent in the BvD datasets—and create a comprehensive panel of ownership/financial data for each firm. This step is crucial in the context of our study, since many target firms may cease to exist as a result of the merger, and are hence deleted from the more recent updates of the Amadeus/Orbis databases. When combining data from different releases and across different BvD products, we account for any changes in firms’ ID numbers occurring over our sample period. The ownership module of the Amadeus/Orbis databases indicates whether a firm has an ultimate owner or if its ownership structure is dispersed or unknown.3 We classify a firm as having “Dispersed” ownership if, according to Amadeus/Orbis, the firm has no recorded shareholder with an ownership stake over 24.99% (either direct stake or total stake) and, at the same time, the sum of ownership stakes of all known shareholders is at least 75.01%. In other words, dispersedly-owned firms cannot have a shareholder, known or unknown, with ownership stake 25.00% or higher. For firms that report information on their ownership structure and are not classified as dispersed, Amadeus/Orbis identifies the firms’ ultimate owner. The ultimate owner is the shareholder with the highest total stake in the firm. If the firm is a part of a corporate pyramidal ownership structure, the ultimate shareholder is the one at the top of the pyramid. The total stake is determined in two steps. First, for each ownership chain that connects the firm with the ultimate shareholder, BvD finds the minimum ownership stake across all ownership links in the chain. Second, the total stake is computed as the sum of the minimum ownership stakes determined in the previous step that are 24.99% or higher. When the ultimate shareholder’s ownership stake in a firm is unknown, but the firm identifies (in its annual report

We do not remove publicly listed companies from our sample for two reasons. First, they often have dispersed ownership structure, which is the base group against which we evaluate the regression results. Second, many closely held firms in Europe (included family firms) are listed with free float being a small fraction of total equity. One notable example is BMW, which is a business group controlled by a family (and is identified as such in Amadeus/Orbis), and the main firm of the group “BMW AG” is listed.

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or otherwise) who the controlling shareholder is, this controlling shareholder is considered to be the ultimate owner of the firm—even if the percentage of ownership is unknown. We classify ultimate owners in two ways. First, the ultimate owners are grouped into different types: “Individual(s)/Family”, “Industrial”, “Financial”, and “Government”. “Industrial” ultimate owners are other incorporated firms that themselves have dispersed ownership. “Financial” ultimate owners are financial institutions like banks, insurance companies, mutual/pension funds, trusts and investment companies, and private equity firms. Second, the ultimate owners are grouped by their domicile. Industrial, financial, and government ultimate owners are classified into “Domestic” if the country of origin of the ultimate owner is the same as the country of incorporation of the target firm, and “Foreign” otherwise. The country of origin of “Individual(s)/Family” ultimate owner is typically not available in Amadeus/Orbis, as the country of origin and/or the nationality of individual owners is not known. We obtain firm financial information from Amadeus. Our target firm-level data includes firm size (in terms of total assets), firm age (in number of years since incorporation), operating performance (ROA), asset tangibility, cash holdings, and leverage. We obtain country- and country-pair-level data from the Thomson Reuters’ Datastream, the World Bank’s World Development Indicators, the Central Intelligence Agency’s World Fact Book, the IMD’s World Competitiveness Online, the European Commission’s Eurostat, and the United Nations’ UN COMTRADE, following Erel et al. (2012). In the end, our country-level data includes measures of acquirer country-target country pair trade linkage, difference in broad macroeconomic conditions including stock market valuation, and difference in the legal, regulatory, and institutional environment. We use these variables in our country-level analysis of the determinants of international M&As.

II.B. Sample Formation and Overview To form our M&A sample, we start with all completed transactions of ownership changes in Zephyr with announcement dates in the 2002-2011 period. First, we exclude transactions (identified using the same deal number) in which a target firm is acquired by multiple acquirers and transaction in which an acquirer buys stakes in multiple targets. Second, we retain deals classified as “Acquisition”, “Merger”,

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or “Institutional Buyout” where there is a change in control, i.e., the acquired stake is greater than 50%, and where the acquirer’s country of incorporation is reported in Zephyr. Next, we only retain deals in which a target firm is incorporated as a limited liability company and is covered by Amadeus with non-missing information on the country of incorporation, industry classification, firm age since incorporation, public listing status, and total assets (as of the fiscal year end prior to the deal announcement) are at least EUR 10,000. Further, we drop deals whose target firm’s ownership is not known as of the time prior to the deal announcement. Specifically, we drop deals in which a target firm’s ownership is neither classified as dispersed nor is there an ultimate owner identified within the 24-month period prior to the month of the deal announcement. When there are multiple observations on ownership (at different points in time) in this two-year period, we retain the most recent observation. Our final sample consists of 19,482 completed M&A transactions reported in Zephyr with the announcement date in the period 2002-2011. Our sample covers target firms from 32 European countries, and acquirers of these target firms from 79 different countries around the world. Ten most represented acquirer countries are UK (24.1%), France (10.6%), Russia (8.3%), Germany (7.5%), Spain (5.7%), US (4.9%), Norway (3.9%), Finland (3.8%), and the Netherlands (3.6%). The ultimate owners of the target firms come from 77 different countries. Ten most represented countries of origin of target firms’ ultimate owners are UK (16.1%), Germany (12.2%), Russia (9.1%), France (8.9%), Sweden (6.9%), Spain (6.4%), US (5.3%), Norway (5.1%), Denmark (4.0%), and the Netherlands (3.3%). Table 1 presents the sample overview. Panel A shows that the countries with more than 500 target firms are Denmark, Finland, France, Germany, Italy, Norway, Russia, Spain, Sweden, and UK. Among all deals in our sample, over 40% of the target firms have individual(s)/family ultimate owners, over a third has industrial ultimate owners, close to 10% have financial ultimate owners, and about 8% have dispersed ownership. It is noteworthy that in our sample, about 5% of the target firms are ultimately owned by governments.

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II.C. Re-Classifying Domestic and International M&As New to the literature on cross-border M&As, we are able to refine the traditional definition of domestic versus cross-border deals and to create a new classification of M&A transactions that accurately reflects their international character.4 “Domestic: Genuine” deals take place when the target firm’s country of incorporation, its ultimate owner’s country of origin, and the acquirer’s country of incorporation coincide. “Domestic: Foreign ultimate owner” deals take place when the target firm’s country of incorporation and the acquirer’s country of incorporation coincide, while the country of origin of the target firm’s ultimate owner is different. “International: Genuine” deals take place when the target firm’s country of incorporation, its ultimate owner’s country of origin, and the acquirer’s country of incorporation are three different countries. There are two forms of quasi cross-border deals. In one form, “International: Ultimate owner same as target” deals take place when the target firm’s country of incorporation differs from that of the acquirer’s, and the country of origin of the target firm’s ultimate owner is the same as the target firm’s country of incorporation. In the other form, “International: Ultimate owner same as acquirer” deals take place when the target firm’s country of incorporation differs from that of the acquirer’s, and the country of origin of the target firm’s ultimate owner is the same as the acquirer’s country of incorporation. In summary, we have two variations of domestic deals, and three variations of international deals, that prior work does not capture due to the lack of detailed information on target firms’ ownership structures. Table 1 Panel B presents an overview of all variations of domestic and international deals in our sample. We first show that 34% of deals in our sample have some international character, while only 25.1% of our sample deals are traditionally defined as cross-border deals. In the subsample of target firms whose ultimate owner is individual(s)/family, 21.6% of the deals are cross-border; in the subsample of dispersedly-owned target firms, 25.7% of the deals are cross-border. Using the subsample of target firms with ultimate owners whose country of origin can be determined, we show that 25.2% of so-called
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For deals with dispersed ownership (where there is no ultimate controlling owner) and for deals with individual(s)/family ultimate owners (where we typically do not have information on the domicile of the ultimate owner), we will only be able to classify deals into domestic versus international deals following convention, i.e., a domestic (an international) deal takes place when the country of incorporation of the target firm is the same as (differs from) the country of incorporate of the acquirer.

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domestic deals involve target firms whose ultimate owners reside in a country that differs from the country of incorporation of the target firm and the acquirer. By contrast, among the so-called cross-border deals, 29.3% of the deals have the country of origin of the target firm’s ultimate owner coinciding with the country of incorporation of the acquirer. Later in the paper, we examine whether and how the domicile and type of target firm’s ultimate owners influence the incidence of different variations of international M&As. Panel C provides the distribution of different variations of deals across sample countries. We show that the top three countries with the highest number of genuine domestic deals are France, Russia, and UK; the top three countries with the highest number of genuine international deals are France, Spain, and UK; and the top three countries with the highest number of international deals where the target firm’s ultimate owner resides in the same country as is the country of incorporation of the acquirer are France, Germany, and UK. By contrast, the top three countries with the highest number of domestic as well as cross-border deals where the target firm is dispersedly owned are Russia, Sweden, and UK. Panel D presents the temporal distribution of different variations of deals. We show that there is about a five-fold increase in deal volume involving target firms with individual(s)/family owners over our sample period. Notably, early during the financial crisis 2007-2008, individual(s)/family owners are selling out to foreign acquirers. There is no clear time trend across other transaction types, and their temporal variations coincide with the recent downturn due to the financial crisis.

II.D. Target Firm- and Country-Level Characteristics Table 2 Panels A-B presents the summary statistics of target firm characteristics, separated by deal types. Panel A presents the summary statistics of target firms in different variations of domestic deals. We show that target firms with foreign ultimate owners are the largest, and target firms with individual(s)/family ultimate owners have the highest ROA, cash holdings, and leverage. Panel B presents the summary statistics of target firms in different variations of international deals. Similarly to domestic M&As, we show that target firms in “International: Genuine” deals are the largest, and target firms with individual(s)/family ultimate owners involved in international deals have the highest ROA and cash holdings.

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Panel C presents the summary statistics of country-level determinants of international M&As. In terms of country-pair characteristics, we show that target countries (T) have higher corporate income taxes than acquirer countries (A). There is certain level of trade linkage between the acquirer country and the target country. In general, the acquirers in our sample come from countries with a higher GDP per capita, higher GDP growth, higher credit market development, and higher stock market valuation, as compared to countries of our target firms. At the same time, countries of our target firms have higher stock market and currency returns than those of the acquirers. We also present statistics on geographic and sociological proximity measures, as well as on our proxies for cultural distance.

III. Deal-Level Results III.A. Presence of an Ultimate Owner and the Incidence of International M&As We first examine whether and how the domicile and type of the target firm’s ultimate owner affect the incidence of international M&As, and we use the target firms with dispersed ownership structure as the baseline group. Table 3 presents the linear probability model results that directly allow assessing the economic magnitude of the estimated coefficients. The dependent variable is a deal-level indicator variable, international deal, which takes a value of one if the country of incorporation of the target firm is different from the country of incorporation of the acquirer, and zero otherwise. In all regressions, the standard errors, shown in parentheses, are adjusted for heteroskedasticity and for clustering at the acquirer level. We correct for clustering because some acquirers make multiple acquisitions in our sample. We also include target firm industry (at three-digit NACE-code level) and calendar year fixed effects to control for unobserved factors affecting all deals in a given industry and in each year. We note that our specification also includes target firm country fixed effects. These fixed effects control for cross-country differences in economic, financial market, and informal institutional characteristics. Panel A Columns (1)-(2) examine the role of the presence of the target firm’s ultimate owner in international M&As. We show that compared to the baseline case of dispersedly-owned target firms, having an ultimate owner is not significantly associated with the likelihood of an international deal

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occurring. Further, we show that larger firms are more likely, while older firms (conditional on size) are less likely, to be the target firm in an international deal. Columns (3)-(4) examine the role of the domicile of the target firm’s ultimate owner in the incidence of international M&As. We show that compared to the baseline case of dispersedly-owned target firms, the presence of a foreign ultimate owner is positively and significantly associated with the likelihood of an international deal occurring. By contrast, the presence of a domestic ultimate owner is negatively and significantly associated with the likelihood of an international deal occurring. Under Column (3) specification, firms with foreign (domestic) ultimate owners are 21.7 percentage points more likely (5.6 percentage points less likely) to be the target firm in an international deal, compared to the likelihood of dispersedly-owned firms to be the target in an international deal. Our findings are consistent with the familiarity bias in equity investments shown in prior studies (see, for example, Coval and Moskowitz (1999) and Grinblatt and Keloharju (2001)). We add to this literature by showing that there is a similar familiarity bias in corporate mergers and acquisitions, supporting our first hypothesis (H1). Panel A Columns (5)-(6) examine the role of the type of the target firm’s ultimate owner in the incidence of international M&As. We show that compared to the baseline case of dispersedly-owned target firms, target firms with an individual(s)/family ultimate owner are negatively and significantly associated with the likelihood of an international deal occurring, consistent with the observed patterns in portfolio investing by individual investors, and supporting our second hypothesis (H2). Villalonga and Amit (2006) and Bennedsen, Nielsen, Pérez-González, and Wolfenzon (2007) show that family successions have a large negative causal impact on firm performance, suggesting that selling out might be a better value proposition. On the other hand, Officer (2007) finds that private target firms experience on average 15-30% discount in the bid premium as compared to similar public firms. Our evidence above suggests that, in case of individual(s)/family owners, such discount is higher for foreign than for domestic acquirers. Similarly, target firms with ultimate government ownership are negatively and significantly associated with the likelihood of an international deal occurring. This evidence is consistent with the argument that governments engage in “economic nationalism” as documented by Dinc and Erel (2012), and supports the first part of our fourth hypothesis (H4).

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Panel B examines the combined role of the domicile and type of the target firm’s ultimate owner in the incidence of international M&As by introducing the interaction terms between the two domicile indicator variables: foreign and domestic, and four ownership type indicator variables: individual(s)/family, industrial, financial, and government.5 We show that compared to the baseline case of dispersedly owned target firms, target firms with any type of foreign ownership, let it be individual(s)/family or government, are positively and significantly associated with the likelihood of an international deal occurring. Similarly, target firms with any type of domestic ownership, let it be industrial or financial owners, are negatively and significantly associated with the likelihood of an international deal occurring. Our results suggest that the domicile of target firms’ ultimate owners matters for the incidence of international deals, while prior work, due to a lack of data on target firms’ ownership, would not be able to reach the above findings.

III.B. Ultimate Owner’s Type and the Incidence of International M&As To directly establish the effect of ultimate owner’s type, next, we separately examine deals involving target firms with domestic and foreign ultimate owners. Specifically, using the subsample of target firms where the ultimate owner is domestic/foreign, we ask whether there is a differential effect of the ultimate owner’s type on the incidence of international M&As. Table 4 Panel A presents the linear probability model regression results. The dependent variable is a deal-level indicator variable, international deal, which takes a value of one if the country of incorporation of the target firm is different from the country of incorporation of the acquirer, and zero otherwise. Columns (1)-(4) present the results using the subsample of target firms with domestic ultimate owners. For this investigation, we remove ownership type “Individual(s)/family” (as there is limited information on their domicile) and all types of deals involving target firms with foreign ultimate owners: “Domestic: Foreign ultimate owner”, “International: Genuine”, and “International: Ultimate owner same as acquirer”.

Ultimate ownership by foreign governments typically occurs in our sample when a government-controlled firm in country j controls a target firm in country i (where i ≠ j).

5

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In Columns (1)-(2), where the target firms with dispersed ownership structure are the baseline group, we show that the target firms with any type of domestic ultimate owner are less likely to be acquired from abroad when compared to the target firms with dispersed ownership. In Columns (3)-(4), where the target firms with government ultimate ownership are the baseline group (and the target firms with dispersed ownership are dropped from the sample), we further show that there is a differential effect of the ultimate owner’s type on the incidence of international M&As: Compared to the target firms with government ownership, those with industrial or financial ultimate owners are more likely to be acquired from abroad. Our evidence suggests that there is economic nationalism of government owners with respect to domestic target firms. Columns (5)-(8) present the results using the subsample of target firms with foreign ultimate owners. For this investigation, we remove ownership type “Individual(s)/family” and the two types of deals involving target firms with domestic ultimate owners: “Domestic: Genuine” and “International: Ultimate owner same as target”. In Columns (5)-(6), where the target firms with dispersed ownership structure are the baseline group, we show that the target firms with any type of foreign ultimate owner are more likely to be acquired from abroad when compared to the target firms with dispersed ownership. In Columns (7)-(8), where the target firms with government ultimate ownership are the baseline group (and the target firms with dispersed ownership are dropped from the sample), we further show that there is no differential effect of the ultimate owner’s type on the incidence of international M&As: Compared to the target firms with government ownership, those with industrial or financial ultimate owners are no more or less likely to be acquired from abroad. We conclude that there is no evidence of economic nationalism by governments with respect to firms that they ultimately control abroad, extending the findings in Dinc and Erel (2012).

III.C. New Types of International M&As So far, we have established that both the domicile and type of target firms’ ultimate owners matter for the incidence of international deals defined using the target firm’s and acquirer’s countries of incorporation. Next, we study whether different types of target firms’ foreign ultimate owners lead to incidences of different variations of domestic and international deals as highlighted in Table 1 Panel B: 18

“Domestic: Foreign ultimate owner”, “International: Ultimate owner same as acquirer”, and “International: Genuine”. Table 4 Panel B examines the role of different types of foreign owners of the target firms in the incidence of the three types of M&As above. The model specification is the multinomial logit regression. The dependent variable takes the value of one if the deal is “Domestic: Foreign ultimate owner”, the value of two if the deal is “International: Ultimate owner same as acquirer”, and the value of three if the deal is “International: Genuine”. For this analysis, only target firms with foreign ultimate owners (i.e., the country of origin of the target firm’s ultimate owner differs from the country of incorporation of the target firm) are included, and the target firms with foreign government ownership form the baseline group. Columns (1)-(3) report the model-implied average probabilities (i.e., the averages of the predicted values evaluated separately for each observation in the sample in percentage points) for each of the three outcomes. Standard errors of the probabilities (also in percentage points) are reported in parentheses. We show that, controlling for target firm size and age, the presence of foreign industrial or financial ultimate owners is positively associated with the incidence of domestic deals, but the effect is small and not statistically significant. However, the presence of foreign industrial or financial ultimate owners is negatively associated with the incidence of “International: Ultimate owner same as acquirer” deals. By contrast, the presence of foreign industrial or financial ultimate owners is positively associated with the incidence of “International: Genuine” deals. Columns (4)-(6) present analogous results after including the full set of target firm-level controls. Ferreira et al. (2010) show that foreign institutional (financial) investors serve as facilitators of cross-border M&As. Extending their results, we show that financial ultimate owners are conducive to incidence of “International: Genuine” deals, but their presence is actually negatively associated with the incidence of “International: Ultimate owner same as acquirer” deals. We find the same heterogeneous effect for industrial ultimate owners. Note that, in this analysis, the baseline group is target firms with foreign government ownership. Put differently, our results in Columns (2) and (5) suggest that foreign government ownership is positively associated with incidence of “International: Ultimate owner same as acquirer” deals as compared to foreign industrial or financial ultimate owners. Since, in this case, the government owner is foreign with respect to the target firm, but domestic with respect to the acquirer, our

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evidence points out that foreign government owners in target firms are actually more likely to pursue domestic deals with respect to their acquirer compatriots. This evidence is in line with our prior finding that domestic government ownership is negatively associated with the incidence of traditionally defined cross-border M&As. By contrast, we do not see the same propensity of foreign industrial or financial ultimate owners toward their compatriot acquirers. Our deal-level evidence highlights the heterogeneity of the effects of different types of target firm’s ultimate owners in the incidence of international M&As. Furthermore, we show the importance of differentiating various types of international M&As using refined ownership data.

III.D. The Role of Financial Crisis Our sample period spans the financial crisis when we expect a heightened need to sell and hence the supply of target firms is increasing, while in the meantime, there is a liquidity crunch that impedes any firm’s ability to acquire due to credit rationing and/or high external finance costs. Table 1 Panel D suggests that target firms with different ultimate owners exhibit different susceptibility to the onset of the crisis. In Table 5 Panel A, we extend our Table 3 Panel A specifications by interacting target firms’ ownership characteristics with the financial crisis variable to investigate the differential effect of ownership on the incidence of international M&As since the onset of the crisis. T is an indicator variable, taking the value of one if the sample period is 1997-2011, and zero otherwise. Columns (1)-(2) examine the role of the presence of the target firm’s ultimate owner in international M&As. We show that, compared to the baseline case of target firms with dispersed ownership, target firms with an ultimate owner are negatively and significantly associated with the likelihood of an international deal. However, the coefficient estimate on the interaction term between the financial crisis indicator variable and target ultimate owner is positive and significant, offsetting the negative effect of target ultimate owners on the incidence of international M&As. It is worth noting that the financial crisis itself is not significantly associated with the likelihood of international M&As. Columns (3)-(4) examine the role of the domicile of the target firm’s ultimate owner in the incidence of cross-border M&As. We show that compared to the baseline case of dispersedly-owned target firms, there is some evidence that the financial crisis mitigates the positive influence of foreign 20

owners on the likelihood of an international deal. By contrast, the financial crisis has no effect on the negative association between the presence of a domestic owner and the likelihood of an international deal. Columns (5)-(6) examine the role of the type of the target firm’s ultimate owner in the incidence of cross-border M&As. We show that the coefficient estimate on the interaction term between the financial crisis indicator variable and the individual(s)/family owner of target firms is positive and significant, offsetting the negative effect of target individual(s)/family ultimate owners on the incidence of international M&As. Further, the coefficient estimate on the interaction term between the financial crisis indicator variable and the industrial owner of target firms is positive and significant, suggesting that during the financial crisis, the presence of target industrial ultimate owners is positively and significantly associated with the incidence of international M&As. Finally, the coefficient estimate on the interaction term between the financial crisis indicator variable and the government owner of target firms is positive and significant, offsetting the negative effect of target government ultimate owners on the incidence of international M&As. Overall, we show that the financial crisis mitigates the barriers due to different ownerships on the incidence of international M&As, possibly due to a combination of two factors—a larger need to sell off in the midst of the crisis, while the pool of potential (domestic) buyers is shrinking, forcing owners that were less likely to pursue international sales during pre-crisis time to sell to foreign acquirers.

III.E. The Role of Firm Size and Age Previously, we have shown that two target firm characteristics—firm size and age—are important determinants of a firm becoming an international takeover target. The finding is intuitive, large firms and older firms are less susceptible to asymmetry information, which is a major impediment to foreign acquirers. It is worth examining if there is any differential effect of the domicile and type of target firms’ ultimate owners in firms of different size and age. Table 5 Panel B presents the results from our investigation of the role of firm size interacting with domiciles and different types of target firm owners in the incidence of international M&As. In general, we find that the effect of domicile and type of target firms’ ultimate owner on the incidence of international M&As is mitigated: Larger target firms, irrespective of their ultimate owners’ domicile and type, are more likely to be acquired from abroad as compared to dispersedly-owned target firms. For example, under Column (1) specification, the negative 21

4.8 percentage point effect of having an ultimate owner on the incidence of international M&As is reduced by 1.7 percentage points (i.e., by more than a third) when we interact the ultimate owner indicator variable with target firm size. Comparing the effect of target firm size across different ownership types, we find statistically significant and economically meaningful results for target firms with individuals/family and industrial ownership. For example, under Column (5) specification the negative 6.3 percentage point effect of having individuals/family ultimate owner is reduced by 1.5 percentage points when we interact the individuals/family ownership type with target firm size. We do not see any firm size effect in the role of target government owners in the incidence of international deals. Overall, the mitigating effect of firm size on the role of domicile and type of target firms’ ultimate owner in international deals makes sense because large targets can easily overcome transaction costs and information asymmetry associated with an international deal, and any biases stemming from target firms’ ultimate owners would be relatively more costly for large targets compared to small targets from the point of view of the ultimate owner, see for example, the availability of a domestic buyer for large targets. Table 5 Panel C presents interaction terms involving firm age and domiciles and different types of target firm owners. The mitigating effect of firm age is shown to be bigger on the incidence of international deals when the target firm has industrial or financial owners, consistent with firm age proxying for lower information asymmetries.

IV. Country-level Analysis So far, we have established that at the deal level, both the domicile and type of target firms’ ultimate owner matter in the incidence of international M&As. It is interesting to examine if the above evidence still holds at the aggregate level. Table 6 presents the OLS regression results at the country level. The dependent variable is the share of international deals (defined in the traditional way) in target country i, computed as the ratio of the number of international deals in each year in which the target firm is from country i and the acquirer is from country j (where i ≠ j), scaled by the sum of domestic deals in target country i and international 22

deals in which the target firm is from country i and the acquirer is from country j. The key variables of interest are aggregate measures of domicile and type of target firm owners. Specifically, using data on the largest 300 firms by sales as of 2010 in each country, we construct both domicile and type of ownership variables as the share of the number of firms with a given domicile: domestic versus foreign (relative to the target firm) and a given ownership type: individual(s)/family, industrial, financial, and government.6 Consistent with the deal-level evidence, we show that the presence of target firm foreign (domestic) owners is positively (negatively) and significantly associated with the share of international deals in the target country. Once we interact the type of target owners with their domicile, we show that compared to the baseline case of dispersedly-owned target firms, target firms with any type of foreign ownership are positively and significantly associated with the share of international deals. Similarly, target firms with any type of domestic ownership are negatively and significantly associated with the share of international deals.7 Table 7 examines the effect of geographic, sociological, and cultural proximities on international deal volume. The dependent variable is the number of international deals (defined in the traditional way) in target country i in each year in which the target firm is from country i and the acquirer is from country j (where i ≠ j), and the target firm’s ultimate owners are one of the five types: individual(s)/family, another corporation, financial institutions, government, and dispersedly-owned. We use the logarithmic transformation of (1 + the volume) in the OLS regression. It is worth noting that by taking target firm ownership type into account in constructing the dependent variable, our country-level analysis in Table 7 is free of any endogeneity concerns as exhibited in our deal-level analysis. Panel A shows that both geographic and sociological proximities as captured by bilateral trust, and common religion, mainly affect the volume of international deals involving target government owners, consistent with our fifth hypothesis (H5); while cultural proximities mainly affect the volume of international deals involving target individual(s)/family owners, consistent with our final hypothesis (H6).

For this analysis, we extract data on the biggest firms and their ownership structures as of year 2010 from Orbis Neo released in July 2012, which has the most comprehensive coverage of countries around the world. 7 Additional results on the economic, institutional, and informal institutional drivers of international deals are reported in Appendix 2. We show that trade openness and economic and financial development in target countries are positively associated with the aggregate level of international deals, consistent with prior findings in Ferreira et al. (2010) and Erel et al. (2012).

6

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V. Conclusions This paper employs a new sample of mergers and acquisitions (M&As) involving European target firms between 2002 and 2011, for which we can observe the entire ownership structure of the target firm including the identity of its ultimate owner if there is any, and its domicile. As a result, we are able to improve the traditional definition of cross-border deals taking into account the domiciles of the target firm, its ultimate owner, and the acquirer. For example, genuine domestic deals occur when all the three entities reside in the same country, and international deals occur where at least two of the three entities reside in different countries. Using the dispersed ownership type as the baseline, we examine whether and how different types of owners in the target firms: individual(s)/family, industrial, financial, and government, affect the incidence of international M&As. We find that both individual(s)/family and government owners are negatively associated with the incidence of international M&As; while the foreign domicile of target owners is positively associated with the incidence of international M&As. We also examine to what extent firm characteristics such as firm size and age, the recent financial crisis, and geographic, sociological, and cultural proximities impact the incidence of international M&As. We conclude that corporate ownership is an important determinant of international M&As.

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Appendix 1 Variable Definitions 

Dependent variables

Share of international M&Asij,t The number of international M&A deals in each year in which the target firm is incorporated in country i and the acquirer is incorporated in country j (where i ≠ j), scaled by the sum of domestic deals in which the target firm and the acquirer are incorporated country i and the number of international deals in which the target firm is incorporated in country i and the acquirer is incorporated in country j. (Source: Zephyr.) Volume of international M&Asij,t The number of international M&A deals in each year in which the target firm is incorporated in country i and the acquirer is incorporated in country j (where i ≠ j). The variable is defined separately for target firms with different types of ultimate owners—individual(s)/family, industrial, financial, government, and dispersedly-owned. (Source: Zephyr.) 

Economic determinants

(Market return)A-T,t The difference in annual local real stock market return between the acquirer and target firm countries. We obtain total value-weighted return indices in local currency (Datastream code: RI) for each country to compute nominal annual market returns. We then adjust the nominal returns using the annual price level increase computed using the Consumer Price Index in each country. (Source: Datastream.) (Market MTB)A-T,t The difference in annual value-weighted market-to-book-equity ratio (Datastream code: BP) between the acquirer and target firm countries. (Source: Datastream.) Currency volatilityij,,t The standard deviation of the first-difference of the monthly natural logarithm of the bilateral nominal exchange rate. (Source: Datastream.) (Currency return)A-T,t The difference in annual real bilateral U.S. dollar exchange rate returns between the acquirer and target firm countries. For each currency, we obtain the (annual average) National Exchange Rates for the U.K. Pound Sterling and convert these rates to U.S. dollar exchange rate using the corresponding GBP/USD rates. We then compute the annual nominal returns on the currency and deflate these returns using the Consumer Price Index in each country to calculate real exchange rate returns (in U.S. dollars). (Source: Datastream.) Trade opennessij,t The maximum of bilateral import and export between a country pair in each year. Bilateral import (export) is calculated as the value of imports (exports) by the target firm country from (to) the acquirer country as a percentage of total imports (exports) by the target firm country. (Source: UN COMTRADE.) (GDP per capita)A-T,t The difference in the logarithm of annual Gross Domestic Product (GDP, in U.S. dollars) divided by the population between the acquirer and target firm countries. (Source: World Bank Development Indicators.) 25

(GDP growth)A-T,t The difference in annual real growth rates of the Gross Domestic Product per capita between the acquirer and target firm countries. (Source: World Bank Development Indicators.) (Private credit to GDP)A-T,t The difference in annual domestic credit to private sector as a percentage of Gross Domestic Product between the acquirer and target firm countries. (Source: World Bank Development Indicators.) (Profit tax)A-T,t The difference in annual corporate income-tax rates between the acquirer and target firm countries. (Source: World Bank Development Indicators.) 

Gravity variables

Share borderij Indicator variable equal to 1 if the acquirer and target firm countries have common land border, and zero otherwise. (Source: The World Factbook.) Geographic distanceij The natural logarithm of the great-circle distance between the capital cities of the acquirer and target firm countries. We obtain latitude and longitude of capital cities of each country and compute the distance using the Haversine formula. (Source: The World Factbook.) 

Social and institutional factors

Common languageij Indicator variable equal to 1 if the acquirer and target firm countries use common official language, and zero otherwise. (Source: The World Factbook.) Common religionij Indicator variable equal to 1 if people of the acquirer and target firm countries practice common religion, and zero otherwise. (Source: The World Factbook.) Bilateral trustij For each country pair, we compute the fraction of respondents in the target firm country who answer that they “trust a lot” the people of the acquirer country, as in Guiso, Sapienza, and Zingales (2009). (Source: Eurostat’s Eurobarometer surveys.) |  Autonomyij | The absolute value of the difference in the level of affective autonomy between the acquirer and target firm countries. Affective autonomy: The person is an autonomous, bounded entity and finds meaning in his / her own uniqueness, seeking to express own internal attributes (preferences, traits, feelings) and is encouraged to do so. Affective Autonomy promotes and protects the individual’s independent pursuit of own affectively positive experience (pleasure, exciting life, varied life). (Source: Schwartz (1999).) |  Egalitarianismij |

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The absolute value of the difference in the level of egalitarianism between the acquirer and target firm countries. Egalitarianism: Individuals are portrayed as moral equals, who share basic interests and who are socialized to transcend selfish interests, cooperate voluntarily with others, and show concern for everyone’s welfare (equality, social justice, freedom, responsibility, honesty). People are socialized to be autonomous rather than interdependent because autonomous persons have no natural commitment to others (equality, social justice, freedom, responsibility, honesty). (Source: Schwartz (1999).) |  Masteryij | The absolute value of the difference in the level of mastery between the acquirer and target firm countries. Mastery: Groups and individuals should master, control, and change the social and natural environment through assertive action in order to further personal or group interests. A cultural emphasis on getting ahead through active self-assertion (ambition, success, daring, competence). (Source: Schwartz (1999).) Cultural distanceij Schwartz cultural distance index between the acquirer and target firm countries computed as the sum of |  Autonomyij | + |  Egalitarianismij | + |  Masteryij |. (Source: Schwartz (1999).)

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Appendix 2 Explaining International Deals in Our Sample with Traditional Country-level Determinants
This table presents regression results from the ordinary least squares regression, where the dependent variable is the share of international deals in a target country from a specific acquirer country over the sum of international and domestic deals in the target country. Our sample of acquisition deals involves European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Variable definitions are provided in Appendix 1. Robust standard errors (clustered at the acquirer country level) are reported in parentheses; *, **, and *** denote significance at the 10%, 5%, and 1% level, respectively. (1) -0.038** (0.016) -0.010 (0.019) -0.033 (0.024) (2) (3) (4)

Log(Geographic distance) Common language Common religion (Profit tax)A-T Trade openness (GDP per capita)A-T (GDP growth)A-T (Private credit to GDP)A-T (Market MTB)A-T (Market return)A-T (Currency return)A-T Currency volatility Acquirer country FEs Year FEs R2 N

0.359*** (0.070) 0.588*** (0.190) 0.125*** (0.018) -0.004 (0.006) 0.050*** (0.018) 0.046** (0.021) -0.230*** (0.075) -0.080* (0.046) 0.478 (0.837) Yes Yes 0.13 1,955 Yes Yes 0.15 1,460 Yes Yes 0.25 1,474 Yes Yes 0.09 1,424

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Gupta, Nandini, and Xiaoyun Yu, 2009. Does money follow the flag? Indiana University working paper. Huizinga, Harry P., and Johannes Voget, 2009. International taxation and the direction and volume of cross-border M&As, Journal of Finance 64, 1217-1249. Morse, Adair, and Sophie Shive, 2010. Patriotism in your portfolio? Journal of Financial Markets 14, 411-440. Officer, Micah S., 2007. The price of corporate liquidity: Acquisition discounts for unlisted targets, Journal of Financial Economics 83, 571-598. Pérez-González, Francisco, 2010. The impact of acquiring control on productivity, Stanford University working paper. Portes, Richard and Helene Rey, 2005. The determinants of cross-border equity flows, Journal of International Economics 65, 269-296. Rossi, Stefano, and Paolo F. Volpin, 2004. Cross-country determinants of mergers and acquisitions, Journal of Financial Economics 74, 277-304. Schwartz, S.H. (1999): A Theory of Cultural Values and Some Implications for Work, in: Applied Psychology: An International Review, 1999, 48 (1), 23-47. Shleifer, Andrei and Robert W. Vishny, 2003. Stock market driven acquisitions, Journal of Financial Economics 70, 295-311. Siegel, Jordan I., Amir N. Licht, and Shalom H. Schwartz, 2011. Egalitarianism and international investment, Journal of Financial Economics 102, 621-642. Starks, Laura, and Kelsey Wei, 2004. Cross-border mergers and differences in corporate governance, University of Texas at Austin working paper. Villalonga, Belen, and Raphael Amit, 2006. How do family ownership, management and control affect firm value? Journal of Financial Economics 80, 385-417.

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Table 1 Summary Statistics on Acquisitions Involving European Target Firms, 2002-2011 This table provides summary statistics on acquisition deals involving European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Information on the ownership structure and financial of the target firm is obtained from the Amadeus and Orbis databases. They are five types of owners: individual(s)/family, industrial, financial, government, and dispersedly-owned. A domestic deal takes place if the country of incorporation of the target firm is the same as the country of incorporation of the acquirer. An international deal takes place if the country of incorporation of the target firm differs from the country of incorporation of the acquirer. We also use information on the domicile of the target firm’s ultimate owner to refine “domestic deals” into “Domestic: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer coincide, and “Domestic: Foreign ultimate owner” deals where the domicile of the target firm’s ultimate owner differs from the country of incorporation of the target firm (as well as that of the acquirer by construction). We further refine “international deals” into “International: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer differ from one another, “International: Ultimate owner same as target” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the target firm, and “International: Ultimate owner same as acquirer” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the acquirer. For deals involving target firms with dispersed ownership or target firms with individual(s)/family ultimate owners, we do not have information on the domicile of the target firm’s owners and hence will not refine “domestic deals” nor “international deals.” Variable definitions are provided in Appendix 1. Panel A presents the distribution of acquisition deals by the type of the target firm’s ultimate owner and by the target country. Panel B presents the distribution of domestic and international deals by the type of the target firm’s ultimate owner and by our refinement. Panel C presents the distribution of domestic and international deals by the type of the target firm’s ultimate owner, by our refinement, and by the target country. Panel D presents the distribution of domestic and international deals by the type of the target firm’s ultimate owner, by our refinement, and over time.

31

Panel A: Acquisition deals by the type of the target firm’s ultimate owner and by the target country Target firm's country Austria Belgium Bulgaria Croatia Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Island Italy Latvia Lithuania Luxembourg Netherlands Norway Poland Portugal Romania Russia Slovakia Slovenia Spain Sweden Switzerland UK Ukraine Total Individual(s)/ Family 130 72 42 23 3 49 194 225 281 953 1,070 68 22 66 4 215 33 33 5 80 419 150 60 92 414 1 2 588 112 4 2,699 76 8,185 Industrial 63 224 21 18 1 59 346 51 289 758 415 38 24 28 6 236 17 12 3 314 211 101 61 37 583 8 4 454 640 5 1,832 98 6,957 Financial 14 70 6 4 1 14 85 18 53 301 122 5 4 12 5 88 2 1 3 58 73 30 12 5 145 1 1 115 122 1 423 29 1,823 Government 17 22 23 4 6 17 8 48 87 60 2 10 2 52 6 4 15 36 61 8 14 237 1 27 27 4 39 54 891 Dispersed ownership 8 57 1 1 2 3 64 4 45 137 87 11 2 3 14 46 5 2 2 19 72 19 6 7 340 2 7 109 190 3 300 58 1,626 Total 232 445 93 50 7 131 706 306 716 2,236 1,754 124 62 111 29 637 63 52 13 486 811 361 147 155 1,719 12 15 1,293 1,091 17 5,293 315 19,482

32

Panel B: Domestic and international deals by the type of the target firm’s ultimate owner and by our refinement Individual(s)/ Family Industrial Financial Government Dispersed ownership Total

Domestic International

Deals with individual(s)/family-controlled target firms 6,419 1,766

6,419 1,766 5,208 1,759 807 1,104 793 1,208 418 1,626 1,208 418 19,482

Deals with target firms that have a controlling stake held by an ultimate owner Domestic: Genuine 3,648 937 623 Domestic: Foreign ultimate owner 1,297 369 93 International: Genuine International: Ultimate owner same as target International: Ultimate owner same as acquirer Domestic International Total 603 825 584 177 203 137 27 76 72

Deals with dispersedly-owned target firms

8,185

6,957

1,823

891

33

Panel C: Domestic and international deals by the type of the target firm’s ultimate owner, by our refinement, and by the target country Domestic M&A deals International M&A deals Foreign Ultimate Ultimate Individual(s)/ Dispersed Individual(s)/ Dispersed Genuine ultimate Genuine owner same owner same Family ownership Family ownership owner as target as acquirer Austria 72 36 21 3 58 12 9 16 5 Belgium 42 123 60 30 30 51 42 40 27 Bulgaria 25 32 6 17 5 5 2 1 Croatia 15 5 8 1 8 5 3 5 Cyprus 2 1 1 1 1 1 Czech Rep. 27 8 29 3 22 20 1 21 Denmark 141 252 40 38 53 20 109 27 26 Estonia 199 18 29 3 26 11 4 15 1 Finland 253 227 71 35 28 22 38 32 10 France 774 585 249 101 179 117 108 87 36 Germany 714 232 112 52 356 89 82 82 35 Greece 63 21 11 11 5 3 8 2 Hungary 7 9 11 2 15 9 3 6 Ireland 36 3 11 30 16 3 9 3 Island 3 7 13 1 1 3 1 Italy 165 197 68 32 50 35 32 44 14 Latvia 11 1 10 1 22 5 9 4 Lithuania 16 3 4 1 17 4 1 5 1 Luxembourg 1 1 1 4 3 1 2 Netherlands 55 174 124 13 25 32 24 33 6 Norway 342 179 55 49 77 24 37 25 23 Poland 112 87 46 15 38 18 15 26 4 Portugal 40 42 15 4 20 10 6 8 2 Romania 48 13 18 3 44 15 4 6 4 Russia 385 839 40 303 29 14 61 11 37 Slovakia 1 2 1 3 3 2 Slovenia 4 1 7 2 1 Spain 474 267 163 86 114 64 48 54 23 Sweden 76 497 60 109 36 27 159 46 81 Switzerland 2 6 2 2 2 1 1 1 UK 2,263 1,221 484 239 436 160 262 167 61 Ukraine 56 117 7 51 20 12 38 7 7 Total 6,419 5,208 1,759 1,208 1,766 807 1,104 793 418

Total 232 445 93 50 7 131 706 306 716 2,236 1,754 124 62 111 29 637 63 52 13 486 811 361 147 155 1,719 12 15 1,293 1,091 17 5,293 315 19,482

34

Panel D: Domestic and international deals by the type of the target firm’s ultimate owner, by our refinement, and over time Domestic M&A deals International M&A deals Foreign Ultimate Ultimate Individual(s)/ Dispersed Individual(s)/ Genuine ultimate Genuine owner same owner same Family ownership Family owner as target as acquirer 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total 155 201 230 464 804 992 980 901 893 799 6,419 309 313 341 427 733 842 694 542 575 432 5,208 91 129 119 146 248 263 248 146 201 168 1,759 89 140 98 148 251 101 143 145 93 1,208 47 65 75 116 184 355 296 177 207 244 1,766 46 47 64 68 98 135 117 76 68 88 807 82 74 81 111 131 208 139 73 97 108 1,104 31 40 53 103 169 120 102 58 65 52 793

Dispersed ownership 27 59 69 64 81 27 27 45 19 418

Total 761 985 1,162 1,602 2,579 3,247 2,704 2,143 2,296 2,003 19,482

35

Table 2 Target Firm and Country Characteristics This table provides summary statistics of target firm characteristics and country characteristics. Our sample of acquisition deals involves European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Information on the ownership structure and financial of the target firm is obtained from the Amadeus and Orbis databases. They are five types of owners: individual(s)/family, industrial, financial, government, and dispersedly-owned. A domestic deal takes place if the country of incorporation of the target firm is the same as the country of incorporation of the acquirer. An international deal takes place if the country of incorporation of the target firm differs from the country of incorporation of the acquirer. We also use information on the domicile of the target firm’s ultimate owner to refine “domestic deals” into “Domestic: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer coincide, and “Domestic: Foreign ultimate owner” deals where the domicile of the target firm’s ultimate owner differs from the country of incorporation of the target firm (as well as that of the acquirer by construction). We further refine “international deals” into “International: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer differ from one another, “International: Ultimate owner same as target” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the target firm, and “International: Ultimate owner same as acquirer” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the acquirer. For deals involving target firms with dispersed ownership or target firms with individual(s)/family ultimate owners, we do not have information on the domicile of the target firm’s owners and hence will not refine “domestic deals” nor “international deals.” Variable definitions are provided in Appendix 1. Panel A presents summary statistics of target firm characteristics for domestic deals, separated by our refinement. Panel B presents summary statistics of target firm characteristics for international deals, separated by our refinement. Panel C presents summary statistic of country characteristics.

36

Panel A: Summary statistics of target firm characteristics for domestic deals, separated by our refinement 10th 90th Mean S.D. Median Pctile Pctile Domestic: Individual(s)/Family 18.1 84.5 0.2 17.6 16.5 4.0 2.7 28.5 -17.5 31.3 27.9 2.1 16.1 20.6 0.1 73.8 55.8 23.4 Domestic: Genuine 51.0 171.3 0.5 19.9 19.9 4.0 1.6 27.4 -19.2 35.7 29.4 2.1 12.3 18.0 0.1 71.3 53.7 20.1

Total Assets (EUR mil) Age (Years) ROA (%) Tangibility (%) Cash (%) Leverage (%) Total Assets (EUR mil) Age (Years) ROA (%) Tangibility (%) Cash (%) Leverage (%)

2.2 13.0 4.1 23.5 6.7 68.6 5.1 14.0 3.5 29.0 4.3 66.5 8.2 14.0 2.9 25.0 6.2 66.8 4.1 13.0 3.5 37.5 5.0 59.6

25.2 35.0 27.5 74.9 46.6 107.8 85.0 45.0 24.0 82.0 37.8 104.3 113.7 44.0 25.9 83.0 47.4 114.0 71.2 40.0 23.9 87.2 41.5 98.4

Domestic: Foreign ultimate owner Total Assets (EUR mil) 58.5 168.3 0.7 Age (Years) 20.1 19.5 5.0 ROA (%) -0.2 30.9 -26.3 Tangibility (%) 34.0 30.2 1.4 Cash (%) 15.4 20.8 0.2 Leverage (%) 76.1 63.9 21.5 Domestic: Dispersed ownership Total Assets (EUR mil) 41.7 149.6 0.4 Age (Years) 18.3 19.3 4.0 ROA (%) 1.9 27.1 -14.8 Tangibility (%) 41.3 30.3 3.8 Cash (%) 13.8 19.4 0.1 Leverage (%) 61.9 48.9 10.1

37

Panel B: Summary statistics of target firm characteristics for international deals, separated by our refinement 10th 90th Mean S.D. Median Pctile Pctile International: Individual(s)/Family Total Assets (EUR mil) 33.2 127.7 0.4 Age (Years) 17.3 17.2 4.0 ROA (%) 4.8 27.8 -15.1 Tangibility (%) 31.3 27.9 2.3 Cash (%) 16.1 20.3 0.2 Leverage (%) 72.1 52.6 23.5 Total Assets (EUR mil) Age (Years) ROA (%) Tangibility (%) Cash (%) Leverage (%) International: Genuine 92.5 206.2 1.1 20.5 19.5 5.0 0.8 28.9 -20.0 37.1 30.5 2.1 12.8 18.2 0.2 73.1 54.6 20.3

4.1 12.5 5.4 22.6 7.4 67.8 16.4 14.0 3.4 29.9 4.5 67.1 12.1 15.0 4.4 32.4 3.5 67.7

52.2 34.0 30.0 76.5 46.0 101.3 239.2 47.0 25.2 83.4 37.1 112.1 214.3 51.0 25.2 84.3 32.8 99.9 109.2 37.0 28.9 82.8 39.2 102.9 109.5 33.0 25.7 91.5 48.2 100.0

International: Ultimate owner same as target Total Assets (EUR mil) 83.4 205.4 1.1 Age (Years) 22.0 21.5 4.0 ROA (%) 1.0 30.3 -17.5 Tangibility (%) 37.9 29.6 2.9 Cash (%) 10.5 16.3 0.0 Leverage (%) 74.5 61.6 25.7

International: Ultimate owner same as acquirer Total Assets (EUR mil) 54.5 160.1 0.7 8.0 Age (Years) 17.7 16.6 4.0 13.0 ROA (%) 0.9 33.4 -22.1 4.8 Tangibility (%) 34.6 29.4 2.1 27.2 Cash (%) 14.2 18.0 0.2 7.1 Leverage (%) 74.4 61.6 22.6 67.9 International: Dispersed ownership Total Assets (EUR mil) 59.9 192.3 0.6 Age (Years) 15.8 17.5 4.0 ROA (%) -2.3 33.5 -34.5 Tangibility (%) 42.1 31.5 4.5 Cash (%) 16.5 21.6 0.1 Leverage (%) 62.1 53.9 8.9 5.4 10.0 2.2 37.5 7.1 56.6

38

Panel C: Summary statistic of country characteristics Mean (Profit tax)A-T,t (%) Trade opennessij,t (%) (GDP per capita)A-T,t (%) (GDP growth)A-T,t (%) (Private credit to GDP)A-T,t (%) (Market MTB)A-T,t (Market return)A-T,t (%) (Currency return)A-T,t (%) Currency volatilityij,t (%) Log(Geographic distanceij) Share borderij Bilateral trustij (%) Common languageij Common religionij | Autonomyij | | Egalitarianismij | | Masteryij | Cultural distanceij -2.00 6.30 3.90 0.21 17.00 0.12 -0.30 -0.70 1.70 6.83 0.22 43.80 0.23 0.49 0.41 0.27 0.16 0.84 S.D. 17.90 6.70 99.70 2.52 73.20 0.55 9.10 18.40 1.40 1.06 0.41 14.90 0.42 0.50 0.30 0.22 0.12 0.47 10th Pctile -25.30 0.70 -76.80 -2.56 -81.90 -0.57 -9.80 -20.70 0.00 5.56 0.00 22.70 0.00 0.00 0.06 0.02 0.03 0.28 Median -2.50 4.40 7.40 0.06 15.30 0.09 0.00 -1.00 1.80 6.67 0.00 45.60 0.00 0.00 0.34 0.20 0.13 0.76 90th Pctile 20.40 14.80 123.40 2.79 108.20 0.83 8.10 20.00 3.50 8.41 1.00 61.20 1.00 1.00 0.83 0.59 0.31 1.49

39

Table 3 Explaining International Deals: Deal-level Analysis This table presents regression results from the linear probability model, where the dependent variable is the international deal indicator variable, taking the value of one for international deals, and zero otherwise. Our sample of acquisition deals involves European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Information on the ownership structure and financial of the target firm is obtained from the Amadeus and Orbis databases. They are five types of owners: individual(s)/family, industrial, financial, government, and dispersedly-owned. A domestic deal takes place if the country of incorporation of the target firm is the same as the country of incorporation of the acquirer. An international deal takes place if the country of incorporation of the target firm differs from the country of incorporation of the acquirer. We also use information on the domicile of the target firm’s ultimate owner to refine “domestic deals” into “Domestic: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer coincide, and “Domestic: Foreign ultimate owner” deals where the domicile of the target firm’s ultimate owner differs from the country of incorporation of the target firm (as well as that of the acquirer by construction). We further refine “international deals” into “International: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer differ from one another, “International: Ultimate owner same as target” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the target firm, and “International: Ultimate owner same as acquirer” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the acquirer. For deals involving target firms with dispersed ownership or target firms with individual(s)/family ultimate owners, we do not have information on the domicile of the target firm’s owners and hence will not refine “domestic deals” nor “international deals.” Variable definitions are provided in Appendix 1. Panel A presents regression results of the linear probability model focusing on the domicile and type of the target firm’s ultimate owner. Target firms with dispersed ownership are the baseline group. Panel B presents regression results of the linear probability model focusing on the interaction terms between the domicile and the type of the target firm’s ultimate owner. Target firms with dispersed ownership are the baseline group. Robust standard errors (clustered at the acquirer level) are reported in parentheses; *, **, and *** denote significance at the 10%, 5%, and 1% level, respectively.

40

Panel A: Explaining international deals using domicile and type of target firm ultimate owner (1) (2) (3) (4) Target ultimate owner (UOT) Foreign UOT Domestic UOT Individual(s)/Family UOT Industrial UOT Financial UOT Government UOT Log(Total Assets) Log(Age) ROA Tangibility Cash Leverage Target country FEs Target industry FEs Year FEs R2 N Yes Yes Yes 0.12 19,482 0.034*** (0.002) -0.026*** (0.004) 0.036*** (0.002) -0.026*** (0.005) -0.004 (0.015) -0.014 (0.015) 0.032 (0.023) 0.016* (0.008) Yes Yes Yes 0.12 14,995 0.027*** (0.002) -0.023*** (0.004) 0.029*** (0.002) -0.023*** (0.005) 0.004 (0.015) -0.009 (0.015) 0.012 (0.022) 0.011 (0.008) Yes Yes Yes 0.17 14,995 -0.020 (0.013) -0.019 (0.014) 0.217*** (0.010) -0.056*** (0.007) 0.212*** (0.012) -0.062*** (0.008)

(5)

(6)

-0.040*** (0.013) 0.004 (0.013) -0.004 (0.016) -0.078*** (0.018) 0.032*** (0.002) -0.026*** (0.004)

-0.038*** (0.015) 0.005 (0.015) -0.006 (0.018) -0.076*** (0.019) 0.034*** (0.002) -0.025*** (0.005) -0.003 (0.015) -0.009 (0.015) 0.034 (0.023) 0.015* (0.008) Yes Yes Yes 0.12 14,995

Yes Yes Yes 0.17 19,482

Yes Yes Yes 0.12 19,482

41

Panel B: Explaining international deals using interactions between domicile and type of target firm ultimate owner (1) (2) Foreign × Individual(s)/Family UOT Foreign × Industrial UOT Foreign × Financial UOT Foreign × Government UOT Domestic × Individual(s)/Family UOT Domestic × Industrial UOT Domestic × Financial UOT Domestic × Government UOT Log(Total Assets) Log(Age) ROA Tangibility Cash Leverage Target country FEs Target industry FEs Year FEs R2 N Yes Yes Yes 0.17 19,482 0.368*** (0.025) 0.189*** (0.020) 0.199*** (0.012) 0.218*** (0.037) -0.049*** (0.010) -0.059*** (0.013) -0.051*** (0.008) -0.123*** (0.014) 0.028*** (0.002) -0.022*** (0.004) 0.370*** (0.028) 0.179*** (0.022) 0.196*** (0.013) 0.217*** (0.040) -0.060*** (0.012) -0.062*** (0.014) -0.055*** (0.010) -0.122*** (0.015) 0.030*** (0.002) -0.023*** (0.005) 0.003 (0.015) -0.007 (0.015) 0.015 (0.022) 0.010 (0.008) Yes Yes Yes 0.18 14,995

42

Table 4 Explaining International Deals By The Domicile of Target Firm Owners: Deal-level Analysis This table presents regression results from the linear probability model. Our sample of acquisition deals involves European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Information on the ownership structure and financial of the target firm is obtained from the Amadeus and Orbis databases. They are five types of owners: individual(s)/family, industrial, financial, government, and dispersedly-owned. A domestic deal takes place if the country of incorporation of the target firm is the same as the country of incorporation of the acquirer. An international deal takes place if the country of incorporation of the target firm differs from the country of incorporation of the acquirer. We also use information on the domicile of the target firm’s ultimate owner to refine “domestic deals” into “Domestic: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer coincide, and “Domestic: Foreign ultimate owner” deals where the domicile of the target firm’s ultimate owner differs from the country of incorporation of the target firm (as well as that of the acquirer by construction). We further refine “international deals” into “International: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer differ from one another, “International: Ultimate owner same as target” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the target firm, and “International: Ultimate owner same as acquirer” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the acquirer. For deals involving target firms with dispersed ownership or target firms with individual(s)/family ultimate owners, we do not have information on the domicile of the target firm’s owners and hence will not refine “domestic deals” nor “international deals.” Variable definitions are provided in Appendix 1. Panel A presents regression results of the linear probability model, separating deals by the domicile of the target firm’s ultimate owner: domestic versus foreign. The dependent variable is the international deal indicator variable, taking the value of one for international deals, and zero otherwise. Target firms with dispersed ownership are the baseline group in Columns (1), (2), (5), and (6). Target firms with government ownership are the baseline group in Columns (3), (4), (7), and (8). Robust standard errors (clustered at the acquirer level) are reported in parentheses. Panel B presents model-implied average probabilities (in percentage points) of each of the three outcomes occurring for a given value of covariates from running the multinomial logit specification. Standard errors of the probabilities (also in percentage points) are reported in parentheses. The dependent variable takes the value of one if the deal is “Domestic: Foreign ultimate owner,” the value of two if the deal is “International: Ultimate owner same as acquirer,” and the value of three if the deal is “International: Genuine.” For this analysis, only target firms with foreign ultimate owners (i.e., the domicile of the target firm’s ultimate owner differs from the country of incorporation of the target firm) are included and target firms with foreign government ownership are the baseline group. *, **, and *** denote significance at the 10%, 5%, and 1% level, respectively.

43

Panel A: Explaining international deals using ownership type, separated by domicile of target firm ultimate owner (1) Industrial UOT Financial UOT Government UOT Log(Total Assets) Log(Age) ROA Tangibility Cash Leverage Target country FEs Target industry FEs Year FEs R2 N Yes Yes Yes 0.15 7,938 -0.078*** (0.015) -0.081*** (0.018) -0.139*** (0.019) 0.030*** (0.002) -0.020*** (0.006) Deals with domestic UOT (2) (3) -0.079*** (0.017) -0.079*** (0.020) -0.141*** (0.020) 0.032*** (0.003) -0.022*** (0.006) -0.024 (0.022) 0.006 (0.021) 0.027 (0.033) 0.013 (0.012) Yes Yes Yes 0.15 6,684 0.061*** (0.016) 0.056*** (0.018) (4) 0.064*** (0.017) 0.062*** (0.019) (5) 0.197*** (0.023) 0.196*** (0.028) 0.228*** (0.044) 0.019*** (0.004) -0.038*** (0.009) Deals with foreign UOT (6) (7) 0.202*** (0.026) 0.190*** (0.032) 0.242*** (0.049) 0.017*** (0.005) -0.032*** (0.010) -0.024 (0.031) 0.014 (0.033) -0.023 (0.050) 0.002 (0.017) Yes Yes Yes 0.20 4,152 -0.046 (0.043) -0.053 (0.046) (8) -0.060 (0.046) -0.078 (0.050)

0.032*** (0.003) -0.013** (0.006)

0.033*** (0.003) -0.016** (0.007) -0.009 (0.024) -0.005 (0.023) -0.000 (0.035) 0.018 (0.013) Yes Yes Yes 0.15 5,302

0.018*** (0.005) -0.038*** (0.012)

0.011* (0.007) -0.026* (0.014) -0.011 (0.040) -0.005 (0.046) -0.107* (0.064) -0.007 (0.021) Yes Yes Yes 0.18 2,770

Yes Yes Yes 0.14 6,312

Yes Yes Yes 0.19 4,985

Yes Yes Yes 0.16 3,359

44

Panel B: Explaining domestic and international deals associated with foreign target firm owners, using type of target firm ultimate owner Baseline specification All firm-level controls International: International: Domestic: Domestic: Ultimate owner International: Ultimate owner International: Foreign Foreign same as Genuine same as Genuine ultimate owner ultimate owner acquirer acquirer (1) Industrial UOT = 0 Industrial UOT = 1 Financial UOT = 0 Financial UOT = 1 47.4*** (3.0) 52.1*** (1.4) 50.9*** (1.2) 51.6*** (4.0) (2) 37.2*** (3.0) 20.4*** (0.8) 27.7*** (1.1) 12.2*** (1.5) (3) 15.4*** (1.9) 27.6*** (1.4) 21.4*** (0.9) 36.3*** (4.2) (4) 45.8*** (3.3) 51.5*** (1.6) 49.6*** (1.3) 52.1*** (4.4) (5) 38.5*** (3.3) 19.9*** (0.9) 28.1*** (1.3) 11.2*** (1.5) (6) 15.7*** (2.0) 28.6*** (1.6) 22.3*** (1.0) 36.6*** (4.6)

45

Table 5 Explaining International Deals: Deal-level Analysis with Interactions This table presents regression results from the linear probability model, where the dependent variable is the international deal indicator variable, taking the value of one for international deals, and zero otherwise. Our sample of acquisition deals involves European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Information on the ownership structure and financial of the target firm is obtained from the Amadeus and Orbis databases. They are five types of owners: individual(s)/family, industrial, financial, government, and dispersedly-owned. A domestic deal takes place if the country of incorporation of the target firm is the same as the country of incorporation of the acquirer. An international deal takes place if the country of incorporation of the target firm differs from the country of incorporation of the acquirer. We also use information on the domicile of the target firm’s ultimate owner to refine “domestic deals” into “Domestic: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer coincide, and “Domestic: Foreign ultimate owner” deals where the domicile of the target firm’s ultimate owner differs from the country of incorporation of the target firm (as well as that of the acquirer by construction). We further refine “international deals” into “International: Genuine” deals where the country of incorporation of the target firm, the domicile of its ultimate owners, and the country of incorporation of the acquirer differ from one another, “International: Ultimate owner same as target” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the target firm, and “International: Ultimate owner same as acquirer” deals where the domicile of the target firm’s ultimate owner is the same as the country of incorporation of the acquirer. For deals involving target firms with dispersed ownership or target firms with individual(s)/family ultimate owners, we do not have information on the domicile of the target firm’s owners and hence will not refine “domestic deals” nor “international deals.” Variable definitions are provided in Appendix 1. Panel A presents regression results of the linear probability model focusing on the domicile and type of the target firm’s ultimate owner, interacting with the financial crisis indicator variable (T), taking the value of one for the period 2007-2011, and zero otherwise. Target firms with dispersed ownership are the baseline group. Panel B presents regression results of the linear probability model focusing on the domicile and type of the target firm’s ultimate owner, interacting with target firm size. Target firms with dispersed ownership are the baseline group. Panel C presents regression results of the linear probability model focusing on the domicile and type of the target firm’s ultimate owner, interacting with target firm age. Target firms with dispersed ownership are the baseline group. Robust standard errors (clustered at the acquirer level) are reported in parentheses; *, **, and *** denote significance at the 10%, 5%, and 1% level, respectively.

46

Panel A: Explaining international deals using domicile and type of target firm ultimate owner, interacting with the financial crisis indicator variable (1) (2) (3) (4) (5) (6) Target ultimate owner (UOT) -0.054*** -0.058*** (0.020) (0.022) T × UOT 0.056** 0.064** (0.023) (0.025) Foreign UOT 0.237*** 0.226*** (0.016) (0.018) -0.034* -0.025 T × Foreign UOT (0.020) (0.022) -0.055*** -0.065*** Domestic UOT (0.011) (0.013) T × Domestic UOT -0.002 0.005 (0.014) (0.016) -0.091*** -0.092*** Individual(s)/Family UOT (0.021) (0.023) 0.081*** 0.086*** T × Individual(s)/Family UOT (0.024) (0.027) -0.025 -0.027 Industrial UOT (0.020) (0.023) T × Industrial UOT 0.048** 0.052* (0.024) (0.027) -0.027 -0.038 Financial UOT (0.026) (0.029) 0.041 0.054 T × Financial UOT (0.031) (0.034) Government UOT -0.120*** -0.134*** (0.032) (0.033) 0.069* 0.095** T × Government UOT (0.037) (0.039) T (2007-2011 = 1 dummy) -0.018 -0.043 0.034 0.007 -0.012 -0.040 (0.029) (0.033) (0.021) (0.025) (0.029) (0.033) Log(Total Assets) 0.034*** 0.036*** 0.027*** 0.029*** 0.032*** 0.034*** (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) Log(Age) -0.026*** -0.026*** -0.023*** -0.023*** -0.026*** -0.026*** (0.004) (0.005) (0.004) (0.005) (0.004) (0.005) ROA -0.004 0.004 -0.003 (0.015) (0.015) (0.015) Tangibility -0.014 -0.009 -0.010 (0.015) (0.015) (0.015) Cash 0.031 0.012 0.034 (0.023) (0.022) (0.023) Leverage 0.016* 0.011 0.015* (0.008) (0.008) (0.008) Target country FEs Target industry FEs Year FEs R2 N Yes Yes Yes 0.12 19,482 Yes Yes Yes 0.12 14,995 Yes Yes Yes 0.17 19,482 Yes Yes Yes 0.17 14,995 Yes Yes Yes 0.12 19,482 Yes Yes Yes 0.12 14,995

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Panel B: Explaining international deals using domicile and type of target firm ultimate owner, interacting with target firm size (1) (2) (3) (4) (5) (6) Target ultimate owner (UOT) -0.048*** -0.052*** (0.015) (0.017) Log(Total Assets) × UOT 0.017*** 0.018*** (0.005) (0.006) Foreign UOT 0.235*** 0.243*** (0.013) (0.017) -0.010** -0.014** Log(Total Assets) × Foreign UOT (0.005) (0.006) -0.056*** -0.062*** Domestic UOT (0.008) (0.010) Log(Total Assets) × Domestic UOT -0.002 -0.001 (0.003) (0.004) -0.063*** -0.069*** Individual(s)/Family UOT (0.015) (0.018) 0.015*** 0.018*** Log(Total Assets) × Individual(s)/Family UOT (0.006) (0.006) -0.027* -0.030 Industrial UOT (0.016) (0.018) Log(Total Assets) × Industrial UOT 0.019*** 0.019*** (0.006) (0.006) -0.026 -0.033 Financial UOT (0.021) (0.024) 0.014* 0.015* Log(Total Assets) × Financial UOT (0.007) (0.008) Government UOT -0.082*** -0.085*** (0.023) (0.025) 0.008 0.009 Log(Total Assets) × Government UOT (0.008) (0.008) Log(Total Assets) 0.018*** 0.019*** 0.030*** 0.032*** 0.018*** 0.019*** (0.005) (0.006) (0.003) (0.003) (0.005) (0.006) Log(Age) -0.026*** -0.026*** -0.023*** -0.023*** -0.026*** -0.025*** (0.004) (0.005) (0.004) (0.005) (0.004) (0.005) ROA -0.004 0.004 -0.003 (0.015) (0.015) (0.015) Tangibility -0.014 -0.008 -0.009 (0.015) (0.015) (0.015) Cash 0.033 0.011 0.036 (0.023) (0.022) (0.023) Leverage 0.016* 0.011 0.015* (0.008) (0.008) (0.008) Target country FEs Target industry FEs Year FEs R2 N Yes Yes Yes 0.12 19,482 Yes Yes Yes 0.12 14,995 Yes Yes Yes 0.17 19,482 Yes Yes Yes 0.17 14,995 Yes Yes Yes 0.12 19,482 Yes Yes Yes 0.12 14,995

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Panel C: Explaining international deals using domicile and type of target firm ultimate owner, interacting with target firm age (1) (2) (3) (4) (5) (6) Target ultimate owner (UOT) -0.091** -0.110*** (0.036) (0.041) Log(Age) × UOT 0.028** 0.036** (0.013) (0.015) Foreign UOT 0.198*** 0.162*** (0.032) (0.037) Log(Age) × Foreign UOT 0.008 0.019 (0.011) (0.013) Domestic UOT -0.101*** -0.123*** (0.021) (0.027) Log(Age) × Domestic UOT 0.017** 0.023** (0.008) (0.009) Individual(s)/Family UOT -0.105*** -0.129*** (0.038) (0.043) Log(Age) × Individual(s)/Family UOT 0.026* 0.036** (0.014) (0.016) Industrial UOT -0.075* -0.090** (0.039) (0.043) Log(Age) × Industrial UOT 0.031** 0.037** (0.014) (0.016) -0.074 -0.106* Financial UOT (0.048) (0.054) 0.028 0.039** Log(Age) × Financial UOT (0.018) (0.020) -0.131** -0.149** Government UOT (0.055) (0.059) 0.021 0.029 Log(Age) × Government UOT (0.020) (0.021) Log(Total Assets) 0.034*** 0.036*** 0.027*** 0.029*** 0.032*** 0.034*** (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) Log(Age) -0.052*** -0.059*** -0.033*** -0.039*** -0.051*** -0.058*** (0.013) (0.014) (0.006) (0.008) (0.013) (0.014) ROA -0.003 0.003 -0.001 (0.015) (0.015) (0.015) Tangibility -0.014 -0.009 -0.009 (0.015) (0.015) (0.015) Cash 0.031 0.012 0.034 (0.023) (0.022) (0.023) Leverage 0.016* 0.011 0.015* (0.008) (0.008) (0.008) Target country FEs Target industry FEs Year FEs R2 N Yes Yes Yes 0.12 19,482 Yes Yes Yes 0.12 14,995 Yes Yes Yes 0.17 19,482 Yes Yes Yes 0.17 14,995 Yes Yes Yes 0.12 19,482 Yes Yes Yes 0.12 14,995

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Table 6 Explaining International Deals: Country-level Analysis This table presents regression results from the ordinary least squares regression focusing on the domicile and type of the target firm’s ultimate owner, where the dependent variable is the share of international deals in a target country i from a specific acquirer country j over the sum of international and domestic deals in the target country i, following Erel, Liao, and Weisbach (2012). Our sample of acquisition deals involves European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Information on the ownership structure and financial of the target firm is obtained from the Amadeus and Orbis databases. Using data on the largest 300 firms by sales as of 2010 in each country, we construct both domicile and type of ownership variables as the share of the number of firms with a given domicile: domestic versus foreign (relative to the target firm) and a given ownership type: individual(s)/family, industrial, financial, and government. Variable definitions are provided in Appendix 1. Robust standard errors (clustered at the acquirer country level) are reported in parentheses; *, **, and *** denote significance at the 10%, 5%, and 1% level, respectively.

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Closely held (UO) Foreign UO Domestic UO Individual(s)/Family UO Foreign × Individual(s)/Family UO Domestic × Individual(s)/Family UO Foreign × Industrial UO Domestic × Industrial UO Foreign × Financial UO Domestic × Financial UO Foreign × Government UO Domestic × Government UO Log(Geographic distance) Common language Common religion (Profit tax)A-T Trade openness

(1) -0.090 (0.208)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

0.724*** (0.089) -0.940*** (0.098) -0.036 (0.162) 9.355*** (1.157) -0.585*** (0.147) -0.154 (0.175) -1.583*** (0.257) 1.398*** (0.245) -3.544*** (0.339) 6.531*** (1.513) -2.038*** (0.649) -0.053*** 0.013 (0.019) (0.020) -0.038 0.016 (0.025) (0.026) -0.058** 0.036 (0.027) (0.028) -0.001 (0.001) -0.149 (0.222) 0.005*** (0.001) 0.474* (0.256) 51

0.002 (0.020) 0.007 (0.026) 0.028 (0.030) 0.006*** (0.001) 0.419* (0.251)

0.018 (0.019) -0.009 (0.026) -0.046 (0.028) 0.004*** (0.001) 0.383* (0.231)

0.036* (0.019) -0.007 (0.025) -0.014 (0.027) 0.004*** (0.001) 0.504** (0.230)

0.002 (0.020) 0.007 (0.026) 0.024 (0.029) 0.006*** (0.001) 0.409 (0.249)

0.033* (0.019) 0.029 (0.025) -0.022 (0.028) 0.004*** (0.001) 0.408* (0.243)

0.041** (0.019) -0.001 (0.025) -0.041 (0.028) 0.003*** (0.001) 0.591** (0.235)

(GDP per capita)A-T (GDP growth)A-T (Private credit to GDP)A-T (Market MTB)A-T (Market return)A-T (Currency return)A-T Currency volatility Acquirer country FEs Year FEs R2 N

0.140*** (0.028) 0.020** (0.009) 0.113*** (0.022) -0.009 (0.029) -0.249*** (0.082) -0.087 (0.053) -2.665** (1.182) Yes Yes 0.20 1,022

0.081*** (0.028) 0.036*** (0.009) 0.117*** (0.022) 0.004 (0.029) -0.232*** (0.077) -0.091* (0.051) -3.309*** (1.131) Yes Yes 0.27 1,022

0.081*** (0.027) 0.028*** (0.008) 0.124*** (0.022) 0.020 (0.028) -0.226*** (0.075) -0.108** (0.051) -3.411*** (1.066) Yes Yes 0.30 1,022

0.138*** (0.027) 0.022** (0.009) 0.113*** (0.024) -0.009 (0.030) -0.251*** (0.083) -0.086 (0.053) -2.721** (1.207) Yes Yes 0.20 1,022

0.118*** (0.027) 0.043*** (0.010) 0.106*** (0.022) -0.026 (0.029) -0.163** (0.078) -0.054 (0.048) -2.443** (1.106) Yes Yes 0.27 1,022

0.060** (0.030) 0.026*** (0.009) 0.135*** (0.022) -0.034 (0.029) -0.159** (0.076) -0.115** (0.048) -1.136 (1.269) Yes Yes 0.30 1,022

0.093*** (0.025) 0.032*** (0.008) -0.071** (0.028) 0.040 (0.027) -0.267*** (0.077) -0.087* (0.050) -3.786*** (1.087) Yes Yes 0.33 1,022

0.155*** (0.028) 0.019** (0.009) 0.143*** (0.026) 0.007 (0.031) -0.191** (0.084) -0.072 (0.052) -0.509 (1.372) Yes Yes 0.22 1,022

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Table 7 Explaining International Deal Volume: The Role of Culture This table presents regression results from the ordinary least squares regression, where the dependent variable is ln(1 + Cij), where Cij is the number of international deals (following the standard definition) such that the target firm is from country i, and the acquirer is from country j, involving target firms with different ownership types: individual(s)/family, another corporation, financial institutions, government, and dispersedly-owned. Our sample of acquisition deals involves European target firms from 2002 to 2011 as reported by the Zephyr database. Information on the country of incorporation of the target firm and the acquirer is obtained from Zephyr. Information on the ownership structure and financial of the target firm is obtained from the Amadeus and Orbis databases. Using data on the largest 300 firms by sales as of 2010 in each country, we construct both domicile and type of ownership variables as the share of the number of firms with a given domicile: domestic versus foreign (relative to the target firm) and a given ownership type: individual(s)/family, industrial, financial, and government. Variable definitions are provided in Appendix 1. Panel A presents the OLS regression results focusing on three different measures of proximity: geography, trust, and religion. Panel B presents the OLS regression results focusing on Schwartz’s cultural values. |  Autonomy | is the absolute value of the difference between the level of autonomy in the target and acquirer country. |  Egalitarianism | and |  Mastery | are defined analogously. Cultural distance = |  Autonomy | + |  Egalitarianism | + |  Mastery |. Robust standard errors (clustered at the acquirer country level) are reported in parentheses; *, **, and *** denote significance at the 10%, 5%, and 1% level, respectively.

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Panel A: Explaining international deal volume using measures of proximity Industrial Financial Government Individual(s)/ UOT UOT UOT Family UOT (1) Share border Country-pair controls Target country FEs Acquirer country FEs Year FEs R2 N Bilateral trust Country-pair controls Target country FEs Acquirer country FEs Year FEs R2 N Common religion Country-pair controls Target country FEs Acquirer country FEs Year FEs R2 N 0.042 (0.057) Yes Yes Yes Yes 0.33 1,261 0.181 (0.291) Yes Yes Yes Yes 0.37 850 0.136** (0.061) Yes Yes Yes Yes 0.33 1,261 (2) Proximity -0.023 (0.057) Yes Yes Yes Yes 0.31 1,261 Trust 0.464 (0.307) Yes Yes Yes Yes 0.33 850 Religion -0.132** (0.067) Yes Yes Yes Yes 0.31 1,261 (3) -0.005 (0.038) Yes Yes Yes Yes 0.17 1,261 -0.211 (0.215) Yes Yes Yes Yes 0.19 850 -0.033 (0.042) Yes Yes Yes Yes 0.17 1,261 (4) 0.066** (0.026) Yes Yes Yes Yes 0.10 1,261 0.290** (0.128) Yes Yes Yes Yes 0.11 850 0.046** (0.022) Yes Yes Yes Yes 0.10 1,261

Dispersed ownership (5) -0.033 (0.034) Yes Yes Yes Yes 0.24 1,261 0.262 (0.198) Yes Yes Yes Yes 0.27 850 -0.019 (0.041) Yes Yes Yes Yes 0.24 1,261

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Panel B: Explaining international deal volume using Schwartz cultural values Industrial Financial Government Individual(s)/ UOT UOT UOT Family UOT (1) | Autonomy | Country-pair controls Target country FEs Acquirer country FEs Year FEs R2 N | Egalitarianism | Country-pair controls Target country FEs Acquirer country FEs Year FEs R2 N | Mastery | Country-pair controls Target country FEs Acquirer country FEs Year FEs R2 N Cultural distance Country-pair controls Target country FEs Acquirer country FEs Year FEs R2 N -0.146** (0.057) Yes Yes Yes Yes 0.33 1,222 -0.159* (0.085) Yes Yes Yes Yes 0.33 1,222 -0.296* (0.179) Yes Yes Yes Yes 0.33 1,222 -0.125*** (0.040) Yes Yes Yes Yes 0.33 1,222 (2) Autonomy 0.000 (0.060) Yes Yes Yes Yes 0.32 1,222 (3) -0.044 (0.041) Yes Yes Yes Yes 0.17 1,222 (4) 0.024 (0.022) Yes Yes Yes Yes 0.10 1,222 -0.018 (0.030) Yes Yes Yes Yes 0.10 1,222 -0.136** (0.066) Yes Yes Yes Yes 0.10 1,222 -0.000 (0.015) Yes Yes Yes Yes 0.10 1,222

Dispersed ownership (5) 0.006 (0.035) Yes Yes Yes Yes 0.24 1,222 0.063 (0.048) Yes Yes Yes Yes 0.24 1,222 0.022 (0.106) Yes Yes Yes Yes 0.24 1,222 0.018 (0.023) Yes Yes Yes Yes 0.24 1,222

Egalitarianism 0.067 -0.057 (0.083) (0.054) Yes Yes Yes Yes 0.32 1,222 Mastery -0.059 (0.183) Yes Yes Yes Yes 0.32 1,222 Yes Yes Yes Yes 0.17 1,222 0.097 (0.120) Yes Yes Yes Yes 0.17 1,222

Cultural distance 0.011 -0.028 (0.041) (0.027) Yes Yes Yes Yes 0.32 1,222 Yes Yes Yes Yes 0.17 1,222

55