Terrorism, National Security, and Takeover Performance

Abstract

We investigate the potential impact of an acquiring country's situation regarding terrorism and security on an acquirer's long-term post-acquisition takeover performance. Through an exten-sive analysis of 30,401 M&A deals spanning 53 countries between 1990 and 2016, we provide substantial international evidence that the prevailing level of terrorism in the acquiring country significantly diminishes takeover gains over an extended period. On the other hand, acquirer security enhances long-term takeover performance. In addition, we find that religious fraction-alization intensifies the negative impact of terrorism. Moreover, we observe that an acquiring country's terrorism and security situation have a much stronger influence on domestic mergers and on acquirers from less globalized economies, which tend to be less diverse and more se-verely affected by terrorism and security issues compared to acquirers involved in cross-border mergers and hailing from more globalized economies. Finally, while the market reacts quickly to an acquiring country's terrorism situation, the effects on relatively long-term business per-formance develop gradually.

Keywords: mergers and acquisitions, terrorism and national security, globalization, religious fractionalization, takeover performance

JEL Classification: D22, F5, F6, F23, G3, G34, H56