Political Uncertainty and Cross-Border Acquisitions

Chunfang Cao, Xiaoyang Li and Guilin Liu

Review of Finance, 2019, vol. 23, issue 2, 439-470

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.

Keywords: Cross-border acquisitions; National election; Political uncertainty (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (32)

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