Political Risk and Deal Completion Likelihood

Abstract

This study examines the impact of political risk on the likelihood of takeover completion and on deal duration. Using a sample of US deals between 2002 and 2019, we find a negative and significant relationship between the takeover completion likelihood and the bidder’s political risk. Our findings also suggest that firms take more time to complete deals when the bidders face higher political risk. As firm-level political risk breeds uncertainty, bidders faced with higher political risk are more likely to cancel bids before closing and delay deal completion. Political shocks can expose acquirers to default risk and make it costly for bidders to raise external funds to undertake mergers and acquisitions (M&As). Our results are robust, after controlling for potential endogeneity concerns.