Abstract
This paper studies the relation between state visits and cross-border merger and acquisition (M&A) activity. Based on 1161 state visits and 11,531 cross-border acquisitions, we find that corporations from visiting countries are more likely to acquire corporations in countries hosting the visit. Domestic acquisitions in the host country or M&As with non-visiting countries are not elevated. Evidence from instrumental variable analysis points towards a causal effect of state visits on M&A activity. Further analysis shows that the elevated M&A activity originating from visiting countries can be attributed to business networking and a reduction in investment uncertainty and cultural barriers.
Highlights
Political events can affect international business choices, such as investments
Standard errors are clustered at the country-pair level and year level. p values are reported in parentheses. *, ** and *** denote statistical significance at the 10%, 5% and 1% level, respectively
This paper examines the relation between political state visits and the volume of foreign takeovers from the visiting to the host country
Summary
Political events can affect international business choices, such as investments. For example, Nigh (1985), Habib and Zurawicki (2002) and Knill et al (2012) show that foreign direct investment is affected by bilateral political relations and political events such as civil wars, general strikes and civil resistance. Trust and cultural barriers are essential parts of the decision to be involved in crossborder acquisitions, state visits can have meaningful effects on the occurrence of future cross-border M&As. The primary hypothesis is that political visits by heads of state are associated with an increase in M&A deals between the visiting and host countries in the postvisit period. The main finding of this paper is that the volume of inbound cross-border deals in host countries originating from visiting countries increases significantly in the year of the state visit and the subsequent three years. If omitted variables drive our results, we might expect an effect of announced state visits that were eventually cancelled We investigate this possibility and find that the number of cross-border deals does not increase when planned state visits are cancelled.
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