Political Uncertainty and Cross-Border Acquisitions

Review of Finance, Forthcoming

50 Pages Posted: 17 Feb 2015 Last revised: 29 Dec 2017

See all articles by Chunfang Cao

Chunfang Cao

Southwest University of Finance and Economics; Sun Yat-sen University (SYSU)

Xiaoyang Li

Deakin University

Guilin Liu

The University of Hong Kong - School of Economics and Finance

Date Written: February 15, 2015

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

JEL Classification: F21, F23, G34, G38

Suggested Citation

Cao, Chunfang and Cao, Chunfang and Li, Xiaoyang and Liu, Guilin, Political Uncertainty and Cross-Border Acquisitions (February 15, 2015). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2565413 or http://dx.doi.org/10.2139/ssrn.2565413

Chunfang Cao

Southwest University of Finance and Economics ( email )

China

Sun Yat-sen University (SYSU) ( email )

135, Xingang Xi Road
Guangzhou, Guangdong 510275
China

Xiaoyang Li (Contact Author)

Deakin University ( email )

70 Elgar Rd
Burwood, Victoria 3125
Australia

Guilin Liu

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

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