Cross-Border Mergers and Acquisitions amid Political Uncertainty

46 Pages Posted: 18 Aug 2013 Last revised: 8 Aug 2018

See all articles by Kyeong Hun Lee

Kyeong Hun Lee

Norwegian School of Economics (NHH) - Department of Finance

Date Written: July 26, 2013


This paper examines the effects of political uncertainty surrounding national elections on cross-border mergers and acquisitions activity. Using a sample of completed cross-border mergers and acquisitions among 43 countries announced during 1990-2011, I find that the volume of cross-border mergers and acquisitions between two countries significantly declines when there is a forthcoming national election in the target country. This result suggests that political uncertainty regarding future government policy is an important determinant of cross-border acquisition activity. In addition, industry characteristics play a role in explaining the pattern of cross-border mergers and acquisitions amid increasing political uncertainty: firms in industries that are more dependent on the quality of contract enforcement, labor, and government spending are less likely to be acquired during national election years. I further test the valuation effects of policy uncertainty. I find that acquirers offer a lower bid premium when a cross-border deal is announced during the target country’s election year. Further analysis reveals that the acquirer captures a greater fraction of merger gains relative to the targets in such a deal, which indicates that the target’s bargaining position in merger negotiations is weakened during its national election year. Political uncertainty also has an effect on the method of payment in cross-border acquisitions. The likelihood of an all-cash offer is significantly lower in the face of the target country’s election.

Keywords: Mergers and acquisitions, Political uncertainty

JEL Classification: G15, G34

Suggested Citation

Lee, Kyeong Hun, Cross-Border Mergers and Acquisitions amid Political Uncertainty (July 26, 2013). Available at SSRN: or

Kyeong Hun Lee (Contact Author)

Norwegian School of Economics (NHH) - Department of Finance ( email )

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