With a vast territory and a long history, China has a unique and diverse regional culture. Due to geographical, historical and political reasons, local dialects in different regions have become important carriers of Chinese regional culture. In other words, the unique linguistic environment, as an important part of regional culture and an informal system, exerts a profound influence on corporate governance. M&A events, involving a large number of participants and fierce competition of interests, represent the allocation and reorganization of resources. In the process of M&As, dialect background is a kind of corporate capital to facilitate its own action. Specifically, the same or similar dialect background is somehow a natural link between the acquirer and the target company, making it easier to mobilize resources, facilitate transactions and enhance post-M&A performance. Using the dialect data fromLanguage Atlas of China and manually matching the linguistic differences between the acquirers and the target companies, we identify acquisitions made by listed companies between 2000 and 2012. After controlling the geographic factors and various economic factors（transaction characteristic, characteristics of the acquirers and the target companies, etc.）, we find that the greater the dialect distance is, the less the shareholder value is. Further analysis shows that this correlation exists when the informal institutions play a complementary role or information asymmetry is serious, however, this correlation is weaker to some extent with the popularization of Putonghua. In view of the inherent problem of endogeneity in the study of culture and corporate governance, this paper takes some measures such as tool variable method, control missing variable and random effect model. Our studies provide the evidence that through specific corporate financial behavior, dialects have a significant effect on economic issues like corporate governance. Different from previous researches, this paper explores a new perspective on how to measure corporate cultural differences. We use the structure of Chinese dialects as our definition of corporate culture and match the linguistic distance between different companies manually. At the same time, this paper expands the discussion of dialects in corporate governance through digging into a specific corporate financial behavior. It also provides the micro evidence that dialects affect corporate economic performance. The research in this paper shows that the dialect, as an important representative of regional culture, exerts its influence on a company’s specific financial activities when playing its role of human capital and culture identity. The scope of such impacts may also be reflected in other economic decisions of enterprises, confirming the influence mechanism that informal institutions play an important role in economic development. This paper also has some limitations. Firstly, there are some controversies over the dialectal classification in China. The classification method adopted in this paper is mainly based on the Chinese Language Atlas compiled by the Chinese Academy of Social Sciences. Its classification method is more authoritative, which can ensure the accuracy of dialect regional division. However, the dialect division in some disputed areas may still cause some controversies. Secondly, although this paper attempts to solve the endogenous problem in several ways, the problem still remains. Maybe one day it could be solved by the exogenous changes in future dialect policies or new research methods. Thirdly, the language mentioned in this paper plays the role of a cultural proxy variable, besides, its impact on thinking mode may have a more important position in future studies.
Cultural Differences, Dialect Feature and M&As
Journal of Finance and Economics Vol. 44, Issue 06, pp. 140 - 152 (2018) DOI:10.16538/j.cnki.jfe.2018.06.010
 Chang Y C, Hong H G, Tiedens L, et al. Does diversity lead to diverse opinions? Evidence from language and stock market[R]. Working Paper, 2015.
 Chen D H, Hu X L, Liang S K, Xin F. Religious tradition and corporate governance[J], Economic Research Journal, 2013, (9): 71-84.(In Chinese)
 Chen M K. The effect of language on economic behavior: Evidence from savings rates, health behaviors, and retirement assets[J]. American Economic Review, 2013, 103(2): 690−731.
 Chen S H, Jiang G S, Lu C S. Director connections, target firm selections and M&A performance[J], Management World, 2013, (12): 117-188. (In Chinese)
 Dai Y Y, Xiao J L, P Y. Can “local accent” reduce agency cost?[J], Economic Research Journal, 2016, (12): 147-186.(In Chinese)
 Fan G, Wang X L. NERI INDEX of marketization of china’s provinces 2011 report[M], Beijing: Economic Science Press, 2011. (In Chinese)
 Feng Z M, Tang Y, Yang Y Z, Zhang D. The relief degree of land surface in China and its correlation with population distribution[J], Acta Geographica Sinica, 2007, (10): 1073-1082.(In Chinese)
 Feng Z M, Yang Y Z, You Z, Zhang J H. Research on the suitability of population distribution at the county level in China[J], Acta Geographica Sinica, 2014, (6): 723-737.(In Chinese)
 Institute of Linguistics CASS, Institute of Ethnology and Anthropology CASS, Language Information Sciences Research Centre of City University of Hong Kong. Language atlas of China[M], Beijing: The Commercial Press, 2012.(In Chinese)
 Lehn K, Zhao M. CEO turnover after acquisitions: Are bad bidders fired?[J]. Journal of Finance, 2006, 61 (4):1759-1811.
 Li Q, Meng L S. Dialect, mandarin and labor migration[J], China Journal of Economics, 2014, 1(4): 68-84.(In Chinese)
 Li S M, Zhou X C. An empirical study on firm characteristic, industry characteristic and M &A strategy type[J], Management World, 2007, (3):130-137. (In Chinese)
 Liu Y Y, Xu X Y, Xiao Z K. The pattern of labor cross-dialects migration[J], Economic Research Journal, 2015, (10): 134-162.(In Chinese)
 Masulis R W, Wang C, Xie F. Corporate governance and acquirer returns[J]. Journal of Finance, 2007, 62 (4): 1851−1889.
 Portes R, Rey H. The determinants of cross border equity flows[J]. Journal of International Economics, 2005, 65(2): 269−296.
 Putonghua Survey Project Team. Survey of popularization of Putonghua[J], Applied Linguistics, 2011, (3):2-10. (In Chinese)
 Ramsey S R. The languages of China[M]. Princetion, NJ: Princeton University Press, 1987.
 Tang J S, Chen D. Regional investor protection[J], Management World, 2010, (8): 102-116. (In Chinese)
 Wang C, Xie F, Zhu M. Industry expertise of independent directors and board monitoring[J]. Journal of Financial and Quantitative Analysis, 2013, 50(5):929-962.
 Xu B H, Miyada I. Chinese dialect dictionary[M], Shanghai: Zhonghua Book Company, 1999. (In Chinese)
 Xu X Y, Liu Y Y, Xiao Z K. Dialect and economic growth[J], China Journal of Economics, 2015, 2(2): 1-32.(In Chinese)
 Zhang W G. Language as human capital , public good and institution : a basic analytical framework of language and economics[J], Economic Research Journal, 2008, (2): 144-154.(In Chinese)
 Zhao X Y, Li H, Sun C. China regional cultural map: unite or split?[J], Management World, 2015, (2): 101-119. (In Chinese)
Cite this article
Li Lu, He Yuqian, Tang Xiaoyan. Cultural Differences, Dialect Feature and M&As[J]. Journal of Finance and Economics, 2018, 44(6): 140-152.
Previous: Can Social Capital Slow Down the Family’s “Poverty Caused by Illness”? ——Microcosmic Empirical Evidence Based on Health Shock