The Impact of Geographic and Language Distance on Ownership Choice in Cross-Border Acquisitions: The Moderating Role of Ethnic Diversity

In the context of globalization, cross-border mergers and acquisitions (M&As) have become a critical means for enterprises to pursue internationalization. In particular, the choice of ownership share in the restructuring process plays a central role in determining the success of integration. Drawing on transaction cost theory, this study examines how language distance and geographic distance influence ownership choice in the context of Chinese firms’ cross-border M&As. Furthermore, the moderating role of ethnic diversity is examined. The analysis is based on Chinese overseas M&A cases completed between 2002 and 2023, using data from the SDC Platinum database. A total of 432 cross-border M&A samples are employed for empirical analysis through multiple regression models. The results show that both language distance and geographic distance have significant positive effects on ownership choice, indicating that firms tend to adopt higher levels of ownership when facing greater language or geographic barriers in order to reduce transaction uncertainty. However, the interaction between ethnic diversity and language distance is significantly negative, suggesting that in host countries with higher ethnic diversity, the adverse impact of language barriers on ownership decisions is more pronounced. In contrast, the interaction between geographic distance and ethnic diversity is not statistically significant. This study extends the theoretical lens on language and geographic distance, enriches the understanding of ownership structure decisions, and provides empirical evidence to support Chinese firms in formulating effective M&A strategies.