Bilateral Political Relations and Cross-Border M&As

48 Pages Posted: 17 Nov 2016

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Shu Lin

Department of Economics, The Chinese University of Hong Kong

Qianru Qi

Telfer School of Management

Date Written: June 18, 2016

Abstract

We examine the role of bilateral political relations on cross-border merger and acquisition (M&A) activities. Based on a large sample of cross-border deals during 1990- 2010, we find strong and robust evidence that bilateral political relations have large and significant causal effects on cross-border M&As. A one-standard-deviation increase in political affinity leads to a 23% increase in the number of deals and a 44% increase in the total deal value. This effect is stronger for targets in strategic industries and targets owned by government, suggesting direct government involvement. We also find a stronger effect in acquisitions with higher investment irreversibility, suggesting higher 2 investor caution with declining political affinity. Our findings are robust to alternative model specifications, different variable measurements, and tests for endogeneity.

Keywords: Political Relations, Economic Exchange, Cross-Border Mergers and Acquisitions

JEL Classification: F21, G34, F50

Suggested Citation

John, Kose and Lin, Shu and Qi, Qianru, Bilateral Political Relations and Cross-Border M&As (June 18, 2016). Available at SSRN: https://ssrn.com/abstract=2871626 or http://dx.doi.org/10.2139/ssrn.2871626

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Shu Lin

Department of Economics, The Chinese University of Hong Kong ( email )

Department of Economics
The Chinese University of Hong Kong
Shatin, N.T., 200433
Hong Kong

Qianru Qi (Contact Author)

Telfer School of Management ( email )

Ottawa, Ontario
Canada
6136186781 (Phone)

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