Does Geopolitical Risk Affect Acquisitions?

49 Pages Posted: 30 Oct 2019 Last revised: 19 Apr 2022

See all articles by Zhiwei Hao

Zhiwei Hao

Durham University Business School

Ahmed Ameya Prapan

University of Manchester - Alliance Manchester Business School

Konstantinos Gavriilidis

University of Stirling

Dimitris Petmezas

Durham University Business School

Evangelos Vagenas-Nanos

University of Glasgow

Date Written: April 18, 2022

Abstract

Geopolitical risk (GPR), which is a source of uncertainty that has the distinct feature to stem primarily outside the US borders but still affect the US firms, is negatively associated with the US overall, as well as cross-border, acquisition activity. By employing the GPR measure proposed by Caldara and Iacoviello (2022), we find that the negative effect of GPR is more pronounced when acquirers have foreign activities or are financially constrained, and when targets have more irreversible assets or operate in industries with lower competition. Finally, during high GPR periods, acquirers are more cautious engaging in value-increasing deals. Our results support the predictions of the real options theory.

Keywords: Mergers and Acquisitions (M&As), Geopolitical Risk, Real Options, Acquisition Likelihood, Abnormal Returns

JEL Classification: G14, G34

Suggested Citation

Hao, Zhiwei and Prapan, Ahmed Ameya and Gavriilidis, Konstantinos and Petmezas, Dimitris and Vagenas-Nanos, Evangelos, Does Geopolitical Risk Affect Acquisitions? (April 18, 2022). Available at SSRN: https://ssrn.com/abstract=3475537 or http://dx.doi.org/10.2139/ssrn.3475537

Zhiwei Hao

Durham University Business School ( email )

Durham
United Kingdom

Ahmed Ameya Prapan

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Konstantinos Gavriilidis

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

Dimitris Petmezas (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Evangelos Vagenas-Nanos

University of Glasgow ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
451
Abstract Views
1,899
rank
92,095
PlumX Metrics