Abstract
We study the relation between political uncertainty and cross-border acquisitions using national elections as sources of variation in uncertainty. We find that political uncertainty affects the volume, deal structure, and outcome of cross-border acquisitions. Elections in acquirer country encourage firms to acquire targets abroad while elections in target countries deter foreign firms’ inbound acquisitions. At the transaction level, we show that the merging firms adjust termination fee, means of payment, and stakes sought-after prior to elections, consistent with the hypothesis firms mitigate potential risks due to political uncertainty. Overall, the results shed new light on the effects of political uncertainty by providing evidence through the cross-border acquisition channel.
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