Political corruption and mergers and acquisitions |
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| Affiliation: | 1. Trulaske College of Business, University of Missouri, 403 Cornell Hall, Columbia, MO 65211, USA;3. College of Business, Florida Atlantic University, 777 Glades Road, Boca Raton, FL 33431, USA;1. School of Management, Zhejiang University, Xihu District, Hangzhou, 310058, China;2. Department of Finance and Banking, School of Economics and Finance, Curtin University, Bentley, Western Australia 6102, Australia;3. Department of Finance, Deakin University, 221 Burwood Highway, Burwood, Victoria 3125, Australia;1. Università Cattolica del Sacro Cuore, Milan, Italy;2. Department of Finance, College of Business Administration, BSN 3403, University of South Florida, Tampa, FL 33620, USA;3. Surrey Business School, University of Surrey, Surrey, United Kingdom |
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| Abstract: | This research examines the relation between political corruption and mergers and acquisitions (M&As). We find that local corruption increases firm acquisitiveness but decreases firm targetiveness. The levels of corruption in acquirer areas relate positively to the bid premiums and negatively to the likelihood of deal completion. Corruption motivates acquiring firms to use excess cash for payment, which mitigates the negative effect of corruption on acquirer shareholder value. The evidence indicates that acquisitions help acquiring firms convert cash into hard-to-extract assets and relocate assets from the high to low corruption areas, thereby shielding their liquid assets from expropriation by local officials. |
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