Does Geopolitical Risk Affect Acquisitions?

62 Pages Posted: 30 Oct 2019 Last revised: 22 Oct 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: October 21, 2020

Abstract

Geopolitical risk (GPR) is negatively associated with both domestic and inbound cross-border acquisition activity. In support of the predictions of a real options channel, the negative effect of GPR is more pronounced when acquirers have foreign business segments or are financially constrained, and when targets have more irreversible assets or operate in industries with lower competition. Additionally, during high GPR periods, acquirers become more cautious experiencing higher stock returns. Finally, in announced deals, consistent with the interim risk mechanism, GPR is associated with shorter time to deal completion, higher takeover premiums, and lower likelihood of target termination fees, indicating an increase in targets’ 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? (October 21, 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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