Political Attitudes, Partisanship, and Merger Activity

Abstract

We demonstrate that similarity in employees’ political attitudes plays an important role in mergers and acquisitions. Using detailed data on employees’ campaign contributions to Democrats and Republicans, we find that firms are considerably more likely to announce and complete a merger when their political attitudes are closer. Furthermore, acquisition announcement returns and post-merger performance are higher when employees have more similar political attitudes. The effects are stronger when political polarization is greater, and when the target and acquirer plan to integrate operations. Overall, we provide new estimates that political attitudes and polarization affect the allocation of real assets.

Keywords: campaign contributions, mergers and acquisitions, politics, polarization

JEL Classification: G34, D72