Does religion affect cross-border acquisitions? Tales from developed and emerging economies

This article examines how religious distance and religious freedom influence cross-border acquisition (CBA) activity and firm's choice of control. Using a global sample of 75,151 CBAs across 45(57) acquirer (target) countries over a period of 34 years from 1980 to 2014, we find that the CBA volume is lower with firms preferring partial control when countries are religiously distant. We use three different constructs to examine the role of religious freedom. Our findings show that government favoritism and social regulations reduce the CBA volume whereas state regulations on religion drive CBA volume. In addition, firms opt for full control when countries exhibit higher government favoritism and lower state regulations on religion. We also demonstrate that internationalization decisions depend on the country of origin. Finally, we find that acquirers with a foothold in the target mitigate the information asymmetry associated with religious distance.