Enough is Enough: Policy Uncertainty and Acquisition Abandonment

58 Pages Posted: 12 Jul 2021 Last revised: 26 Jul 2022

See all articles by Andrew Ferguson

Andrew Ferguson

Department of Accounting, UTS

Cecilia Wei 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 how policy uncertainty affects the acquisition process during the post-announcement period. Utilizing a sample of Australian mining sector acquisitions over 1998-2017, we find that rising policy uncertainty after initial acquisition announcements is associated with delays in deal completion. In addition, prolonged high policy uncertainty plays a critical role in triggering acquisition abandonment. Further, the stock market reacts less negatively to deal abandonment decisions made amid protracted policy uncertainty. The muted market reactions are also associated with managers’ explanations for deal abandonment. Overall, our findings highlight that policy uncertainty is an important “deal-breaker” in acquisitions.

Keywords: policy uncertainty, acquisition abandonment, post-announcement period, mining sector investment

JEL Classification: G34, G38

Suggested Citation

Ferguson, Andrew and Hu, Wei and Lam, Peter, Enough is Enough: Policy Uncertainty and Acquisition Abandonment (July 10, 2021). Available at SSRN: https://ssrn.com/abstract=3883981 or http://dx.doi.org/10.2139/ssrn.3883981

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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