Does Geopolitical Risk Affect Mergers and Acquisitions?

Posted: 30 Oct 2019 Last revised: 20 Jan 2020

See all articles by Konstantinos Gavriilidis

Konstantinos Gavriilidis

University of Stirling

Zhiwei Hao

University of Glasgow

Dimitris Petmezas

University of Surrey - Surrey Business School

Ahmed Ameya Prapan

University of Glasgow

Evangelos Vagenas-Nanos

University of Glasgow

Date Written: January 12, 2020

Abstract

Geopolitical risk (GPR) is strongly negatively associated with merger and acquisition activity. In support of the predictions of a real options channel, the negative effects of GPR are more pronounced when acquirers are financially constrained, in more complex deals, and when target firms have relatively more irreversible assets or operate in industries with lower competition. Additionally, during periods of high GPR, acquirers, become more cautious in the deals they conduct and experience higher announcement stock returns. Finally, deal premiums and target termination fees unanimously confirm the increased negotiation power of target firms around during periods of high geopolitical risk.

Keywords: geopolitical risk, mergers and acquisitions (M&As)

JEL Classification: G14, G34, J31

Suggested Citation

Gavriilidis, Konstantinos and Hao, Zhiwei and Petmezas, Dimitris and Prapan, Ahmed Ameya and Vagenas-Nanos, Evangelos, Does Geopolitical Risk Affect Mergers and Acquisitions? (January 12, 2020). Available at SSRN: https://ssrn.com/abstract=3475537

Konstantinos Gavriilidis

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

Zhiwei Hao

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Dimitris Petmezas

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Ahmed Ameya Prapan (Contact Author)

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Evangelos Vagenas-Nanos

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Abstract Views
295
PlumX Metrics