Does Geopolitical Risk Affect Acquisitions?

57 Pages Posted: 30 Oct 2019 Last revised: 12 Mar 2020

See all articles by Zhiwei Hao

Zhiwei Hao

University of Glasgow

Ahmed Ameya Prapan

University of Glasgow

Konstantinos Gavriilidis

University of Stirling

Dimitris Petmezas

Durham University Business School

Evangelos Vagenas-Nanos

University of Glasgow

Date Written: March 11, 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 effect of GPR is more pronounced when target firms have relatively more irreversible assets, operate in industries with lower competition, and when acquirers are financially constrained. Additionally, during periods of high GPR, acquirers become more cautious experiencing higher stock abnormal returns. Finally, consistent with the interim risk mechanism, deals announced during high GPR periods exhibit shorter time to completion, higher takeover premiums, and lower likelihood of target termination fees, indicating increase in target firms’ negotiation power.

Keywords: Mergers and Acquisitions (M&As), Geopolitical Risk, Real Options, Interim Risk

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? (March 11, 2020). Available at SSRN: https://ssrn.com/abstract=3475537 or http://dx.doi.org/10.2139/ssrn.3475537

Zhiwei Hao

University of Glasgow ( email )

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

Ahmed Ameya Prapan

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
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

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