Does bilateral trust matter during M&A negotiations? Evidence from cross-border transactions

We examine the effect of bilateral trust on cross-border M&As. Using a large European M&A sample, we find that bilateral trust facilitates deal initiation and completion. Bidder and target bilateral trusts towards each other are equally important for the deal initiation, but only bidder trust towards the target firm matter for the deal completion. Moreover, the role of bilateral trust on deal success increases in more complex and riskier transactions or with lower cross-border M&A experience. These results support the importance of bilateral trust as deal facilitator in negotiation settings characterized with liability of foreignness, contract incompleteness and weak regulation.