Does Firm-Level Political Risk Affect Mergers and Acquisitions?

In this study I examine how a firm’s exposure to political risk affects its merger & acquisition (M&A) activities. Consistent with the predictions from real options theory, I find that a firm is less likely to engage in M&A activities and less likely to take large M&A deals when its exposure to political risk is high. This effect is particularly evident when acquirers are taking diversified M&As or when acquirers are influential and dominant in their industry. I also find a positive relationship between the time to deal completion and the acquirer’s exposure to political risk. Additionally, given that prudence and conservatism are motivated by a higher-level of political risk, I show that this leads to acquirers paying lower bid premiums and experiencing a larger increase in shareholder value from M&A deals.

Author dc:creator

• Liu, Yanlin

Advisors dc:contributor.advisor

• Zurbrugg, Ralf-Yves
• Xu, Limin
• Luo, Juan

• Firm-level political risk
• mergers and acquisitions

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/2440/128814

OAI identifier oai:identifier

oai:digital.library.adelaide.edu.au:2440/128814