Political Uncertainty and Cross-Border Acquisitions

Question 1

What is the main research question?

Answer 1

How do national elections, as a source of political uncertainty, affect cross-border acquisition decisions and outcomes?

Question 2

What are the three main hypotheses in the paper? (3)

Answer 2

• Deterrence Hypothesis - target country elections deter inbound deals
• Delaying Hypothesis - home elections delay outbound deals
• Hedging Hypothesis - home elections increase outbound deals

Question 3

What is the key empirical finding regarding inbound cross-border acquisitions? (2)

Answer 3

• Inbound acquisitions fall by 6.8% in the year prior to a target country election
• supporting the deterrence hypothesis.

Question 4

What is the key finding regarding outbound acquisitions? (2)

Answer 4

• Outbound acquisitions rise by 7.5% in the year prior to an acquirer country election
• supporting the hedging hypothesis.

Question 5

How is political uncertainty measured in the study? (2)

Answer 5

• By the timing of scheduled national elections
• Elections are exogenous and provide variation across countries and time.

Question 6

What role does expropriation risk play in the analysis?

Answer 6

Inbound deal volume falls more sharply in countries with higher historical expropriation, confiscation risk (ICRG), and weaker checks and balances.

Question 7

What evidence supports the hedging hypothesis beyond just volume?

Answer 7

Outbound acquirers prefer targets with FTAs, military alliances, and stronger governance/shareholder protections when home elections loom.

Question 8

How do elections in both countries affect deals? (2)

Answer 8

• Deal volume drops 2.7% when both acquirer and target have upcoming elections
• announcement returns drop by 1.5 percentage points.

Question 9

How does political uncertainty affect acquirer announcement returns? (3)

Answer 9

• Returns are lower when the target is pre-election
• higher when the acquirer is pre-election
• worse when both face elections simultaneously.

Question 10

What are the implications of their findings for M&A strategy? (3)

Answer 10

• Firms time deals around electoral calendars
• using outbound acquisitions as hedges
• avoiding politically risky targets pre-election.

Question 11

How do domestic and cross-border M&A compare before elections? (2)

Answer 11

• Domestic deal volumes remain unchanged
• only cross-border volumes respond to political elections.

Question 12

How is acquirer preference for safer targets measured?

Answer 12

Outbound acquirers prefer targets with FTAs, military alliances, and better legal protections during home election periods.

Question 13

What is the key theoretical contribution of this paper?

Answer 13

Shows the dual-sided impact of political uncertainty—affecting both acquirer and target—and its influence on strategic investment decisions.