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We study the wealth effects of 177 domestic and cross‐border acquisitions announced by Spanish corporations between 1990 and 2004. Our findings show that domestic transactions significantly outperform international transactions. However, controlling for several firm and transaction characteristics, we do not find any cross‐border effect for acquisitions of Spanish firms. Short‐term valuation is driven by three factors in particular. Target size and bidder’s profitability negatively affect announcement returns, whereas transactions in related industries have a positive effect. Our results may indicate that in contrast to prior empirical findings, international diversification incurs higher costs than synergies and is, among others, driven by managerial and ownership factors.