The impact of policy uncertainty on the M&A exit of startup firms

Carmen Cotei (), Joseph Farhat () and Indu Khurana ()
Additional contact information
Carmen Cotei: University of Hartford
Joseph Farhat: Central Connecticut State University
Indu Khurana: Hampden-Sydney College

Journal of Economics and Finance, 2022, vol. 46, issue 1, No 4, 99-120

Abstract: Abstract This paper examines how economic policy uncertainty impacts the likelihood of mergers and acquisitions as an exit route for startups. Our results show that an increase in policy uncertainty reduces the likelihood of mergers and acquisitions in startups. We argue that EPU negatively impacts the likelihood of M&A activity by increasing both the risk premium for the target firms and the cost of developing the absorptive capacity for the acquirer firm. However, startups that can build competitive advantage and can demonstrate innovative capabilities through the presence of intellectual property are more likely to exit via merger and acquisition, even in high policy uncertainty. Our results are robust after controlling for macro-level indicators and other model specifications. The study contributes to the growing literature that examines the impact of policy uncertainty on various aspects related to businesses in general and startups in particular.

Keywords: Entrepreneurship; Exit of startup firms; Mergers and acquisitions; Policy uncertainty; L26; G28; G38; F44; M13 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s12197-021-09553-9

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