Agricultural Roots and Subnational Cultural Heterogeneity in Domestic Acquisitions

Drawing on the novel-to-the-field rice theory, we study how subnational cultural heterogeneity impacts target performance improvement following an acquisition. Data from domestic acquisitions in the Chinese beer industry show performance is significantly impacted by cultural characteristics formulated through agricultural subsistence activities. We find that both cultural similarity and dissimilarity influence performance: (1) in transactions in which both the acquirer and target are located in rice culture regions, targets achieve greater performance improvement than in those in which both firms are located in a wheat culture region, and (2) targets located in wheat culture areas bought by acquirers from a rice culture area gain greater performance improvement than rice culture targets acquired by firms from a wheat culture area. We also find that acquirers’ experience with rice targets is less beneficial than their experience with wheat targets.