Does Geopolitical Risk Affect Mergers and Acquisitions?

53 Pages Posted: 30 Oct 2019

See all articles by Konstantinos Gavriilidis

Konstantinos Gavriilidis

University of Stirling

Zhiwei Hao

University of Glasgow

Ahmed Ameya Prapan

University of Glasgow

Evangelos Vagenas-Nanos

University of Glasgow

Date Written: October 30, 2019

Abstract

This study examines the relationship between geopolitical risk (GPR) and mergers and acquisitions (M&As). Our findings indicate that GPR negatively affects firm-level acquisitiveness. Supporting our predictions of the real options channel, the negative effects of GPR are strongest for more financially constrained bidders, more complex deals, targets with more irreversible assets and non-multinational bidders. In addition, during periods of high GPR, we find that acquirers, on average, become prudent and perform value-creating deals. Following periods of high GPR, acquirers complete deals more quickly and avoid offering stocks as a payment method. Lastly, deal premiums and target termination fees unanimously confirm the increased negotiation power of targets around high GPR periods.

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

JEL Classification: G14; G34; J31

Suggested Citation

Gavriilidis, Konstantinos and Hao, Zhiwei and Prapan, Ahmed Ameya and Vagenas-Nanos, Evangelos, Does Geopolitical Risk Affect Mergers and Acquisitions? (October 30, 2019). 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

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

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