The Role of Corporate Political Strategies in M&As

Abstract

We use the M&A setting to investigate whether corporate political strategies impact market outcomes. In line with the view that politics can complicate M&A deals, we find that firms contributing to political action committees or involved in lobbying are less likely to be acquired and their takeover process is lengthier. We provide evidence that a likely motive for politicians’ interference with the takeover process can be their career concerns, in terms of getting re-elected and raising funds for future campaigns. We also find that politically connected target firms command higher takeover premiums from bidders lacking political expertise, consistent with the notion that the market regards target firms’ connections, not easily replicable by bidders, as means to enhance growth opportunities of the merged firm. We provide a first step in documenting how political connections can become either a tool of convenience or an impediment for managers of firms involved in acquisitions.