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Political corruption shielding and corporate acquisitions
Author(s) -
Hossain Ashrafee Tanvir,
Kryzanowski Lawrence
Publication year - 2021
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12247
Subject(s) - attractiveness , leverage (statistics) , cash , politics , language change , monetary economics , robustness (evolution) , rent seeking , business , cash flow , economics , finance , accounting , public economics , political science , law , biochemistry , chemistry , psychology , art , literature , machine learning , computer science , psychoanalysis , gene
Corruption includes rent‐seeking behavior by public officials (e.g., lavish in‐kind benefits and monetary kickbacks for contracts/permits/regulatory leniency, improper political contributions/support, etc.) that can negatively affect firm valuations, performances, and strategic choices. Shielding strategies are used to diminish rent‐seeking attractiveness of firms. Acquisitions provide a better channel than cash or leverage for assessing the wealth effects of shielding strategies. We find that the mean 3‐day announcement returns for acquirers for a large sample of U.S. domestic acquisitions between 1990 and 2014 is significantly lower for firms headquartered in relatively higher corruption states. Our results survive an array of robustness tests.