Premium
Political affinity and investors' response to the acquisition premium in cross‐border M&A transactions — A moderation analysis
Author(s) -
Fieberg Christian,
Lopatta Kerstin,
Tammen Thomas,
Tideman Sebastian A.
Publication year - 2021
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.3325
Subject(s) - politics , moderation , stock (firearms) , economics , value (mathematics) , perception , monetary economics , business , social psychology , psychology , political science , law , statistics , mathematics , neuroscience , engineering , mechanical engineering
This article investigates the moderating effect of political affinity between countries on investors' reactions to the premium in cross‐border acquisitions (CBAs). Based on a sample of 1,183 CBAs between 1999 and 2018, we find that political affinity positively moderates the relationship between the acquisition premium and the acquiring and target firms' stock market return. We argue that investors use political affinity to assess the reliability of the premium (i.e., management's overall perception of a given deal's synergistic potential). This is in line with prior literature reasoning that, unlike strong political affinity, weak political affinity increases the likelihood of government intervention, decreases the likelihood of deal completion, and results in higher premiums to mitigate the previous effects, thus potentially increasing the likelihood of value destruction.