Political Uncertainty and Cross-Border Acquisitions. (20th December 2017)

• Record Type: Journal Article
• Authors: Cao, Chunfang; Li, Xiaoyang; Liu, Guilin
• Is Part Of: Review of finance. Volume 23:Number 2(2019)
• Page Start: 439
• Page End: 470
• Publication Date: 2017-12-20
• Subjects: Cross-border acquisitions -- National election -- Political uncertainty; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfx055
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: Using national elections as sources of exogenous variation in uncertainty, we show that political uncertainty affects the volume and outcome of cross-border acquisitions. When a country is about to hold a national election, this deters foreign firms' inbound acquisitions, especially when the host country poses greater expropriation risk. An upcoming home country election encourages firms to conduct outbound cross-border acquisitions, especially to target countries with free-trade agreements, military allies, or countries with better governance. At transaction level, we show that announcement returns to cross-border deals incorporate political uncertainty considerations. Overall, these results shed light on the effects of political uncertainty through the cross-border acquisition channel.