Political Uncertainty and Deal Structure: Evidence from Australian Mining Project Acquisitions
Pacific-Basin Finance Journal 73 (2022): 101756.
54 Pages Posted: 9 Jan 2020 Last revised: 19 Dec 2023
Date Written: July 10, 2021
Abstract
This study investigates whether acquisition deal structure matters in mitigating political
uncertainty-related costs. Utilizing a large hand-collected sample of 3,283 project acquisitions by
Australian mining exploration entities over 1998-2017, we find that acquirers tend to structure
transactions in stages in response to high political uncertainty. In addition, the stock market reacts
more favourably to staged acquisitions than non-staged acquisitions when higher political
uncertainty is observed. Further, we identify three potential mechanisms through which staged
acquisitions help acquirers reduce the negative consequences of political uncertainty: low
abandonment costs, the securing of overseas targets and long contract duration. Overall, our
findings underscore the importance of staged deal structure as an uncertainty-mitigation strategy
in acquisitions.
Keywords: Policy uncertainty, federal voting intention, acquisitions, mining sector investment, real options, growth options
JEL Classification: G34, G38
Suggested Citation: Suggested Citation