Context matters: The signaling role of foreign bidders’ reputation in cross-border acquisition contests

Existing research offers limited understanding of how foreign acquirers enhance their chance of success in cross-border acquisition (CBA) deals. Engaging and extending signaling theory, this paper argues that during the bidding stage of an acquisition deal wherein information asymmetry is heightened between the bidder and seller, reputation of foreign bidders can serve as a signal of quality, increasing their likelihood of winning a deal over domestic bidders. Importantly, this signal is only effective when there is strong nationalist sentiment in the seller's country. Analyses of 580 bidders in 275 cross-border multi-bidder acquisition contests between 1994 and 2016 support our predictions.