Political corruption and mergers and acquisitions

Nam H. Nguyen, Hieu V. Phan and Thuy Simpson

Journal of Corporate Finance, 2020, vol. 65, issue C

Abstract: This research examines the relation between political corruption and mergers and acquisitions (M&As). We find that local corruption increases firm acquisitiveness but decreases firm targetiveness. The levels of corruption in acquirer areas relate positively to the bid premiums and negatively to the likelihood of deal completion. Corruption motivates acquiring firms to use excess cash for payment, which mitigates the negative effect of corruption on acquirer shareholder value. The evidence indicates that acquisitions help acquiring firms convert cash into hard-to-extract assets and relocate assets from the high to low corruption areas, thereby shielding their liquid assets from expropriation by local officials.

Keywords: Political corruption; Mergers and acquisitions; Liquid assets shielding (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920302091

DOI: 10.1016/j.jcorpfin.2020.101765

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