Political Uncertainty and Deal Structure: Evidence from Australian Mining Project Acquisitions

54 Pages Posted: 9 Jan 2020 Last revised: 12 Jul 2021

See all articles by Andrew Ferguson

Andrew Ferguson

Department of Accounting, UTS

Wei (Cecilia) Hu

Deakin University

Peter Lam

University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN)

Date Written: July 10, 2021

Abstract

This study investigates whether acquisition deal structure matters in mitigating political
uncertainty-related costs. Utilizing a large hand-collected sample of 3,283 project acquisitions by
Australian mining exploration entities over 1998-2017, we find that acquirers tend to structure
transactions in stages in response to high political uncertainty. In addition, the stock market reacts
more favourably to staged acquisitions than non-staged acquisitions when higher political
uncertainty is observed. Further, we identify three potential mechanisms through which staged
acquisitions help acquirers reduce the negative consequences of political uncertainty: low
abandonment costs, the securing of overseas targets and long contract duration. Overall, our
findings underscore the importance of staged deal structure as an uncertainty-mitigation strategy
in acquisitions.

Keywords: Policy uncertainty, federal voting intention, acquisitions, mining sector investment, real options, growth options

JEL Classification: G34, G38

Suggested Citation

Ferguson, Andrew and Hu, Wei and Lam, Peter, Political Uncertainty and Deal Structure: Evidence from Australian Mining Project Acquisitions (July 10, 2021). Available at SSRN: https://ssrn.com/abstract=3505732 or http://dx.doi.org/10.2139/ssrn.3505732

Andrew Ferguson (Contact Author)

Department of Accounting, UTS ( email )

PO Box 123 Broadway
Sydney, NSW 2007
Australia
61 2 9514 3565 (Phone)

Wei Hu

Deakin University

221 Burwood Hwy, Burwood
Victoria, Victoria 3125
Australia

Peter Lam

University of Technology, Sydney - Discipline of Accounting ( email )

P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3926 (Phone)
02 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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