This study analyzes the market performance of acquiring firms in cross-border mergers and acquisitions (M&As) using an event study approach on 225 cross-border M&A transactions, occurring in 41 countries between 2000 and 2012, in which non-financial firms in the KOSPI market acquired ownership stakes in the firms. First, we find that the market performance of small acquiring firms is greater than that of large acquiring firms, and therefore the size effect is present in cross-border M&As for acquiring firms. While prior studies failed to identify the cause of the size effect, and named it the “size effect puzzle”, our study finds that discriminatory market reactions to the size effect in cross-border M&As is explained by ROA. Firms with high ROA do not experience the size effect, whereas firms with low ROA do, suggesting that the shareholders of small acquiring firms with substantial growth factors due to their high ROA, are unwilling to transfer their present wealth to the shareholders of foreign target firms, whereas the shareholders of small acquiring firms with low ROA show a strong tendency to pursue growth opportunities overseas through cross-border M&As. Second, we find that target country risk has a significant negative effect on the acquirer’s market reaction. Especially when the target firms are listed on the stock market, the effect of target country risk is much stronger. This is due to the fact that publicly listed corporations are more exposed to the volatility of the country’s capital market than private firms. Third, this study also verifies that Korean firms’ cross-border M&As undergo diversification discount rather than diversification premium, meaning that cross-border diversification faces a significantly high entry barrier to new industries, and that synergistic effects gained through diversification do not materialize quickly.