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Political Uncertainty and Firm Investment: Project-Level Evidence from M&A Activity

Published online by Cambridge University Press:  08 September 2022

Zhenhua Chen ,
Mehmet Cihan ,
Candace E. Jens Open the ORCID record for Candace E. Jens [Opens in a new window]  and
T. Beau Page
Zhenhua Chen
Affiliation:
Louisiana State University E. J. Ourso College of Business zc11@lsu.edu
Mehmet Cihan
Affiliation:
mcihan@tulane.edu
Candace E. Jens*
Affiliation:
Martin J. Whitman School of Management at Syracuse University
T. Beau Page
Affiliation:
Office of the Comptroller of the Currency (OCC) trenton.page@occ.treas.gov
*
cejens@syr.edu (corresponding author)
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Abstract

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We study how firms alter investment projects to mitigate exposure to political uncertainty. We examine deal-level merger data and find that, in addition to delaying and forgoing merger announcements, acquirers shift merger announcements earlier in time to avoid the period between announcement and effective dates overlapping an election, shift targets geographically away from election states, decrease the size of election-year deals, and shift from equity to cash financing for election-year deals. These results are stronger for acquirers with tighter financial constraints and deals more likely to be financed with equity and show financing matters to firms’ responses to election uncertainty.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 1 , February 2023 , pp. 71 - 103
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Vineet Bhagwat (discussant), Paul Malatesta (the editor), Morad Zekhnini, and seminar participants at Tulane University, Louisiana State University, Shanghai Jiaotong University, and the 2018 AFA meeting for helpful comments and suggestions. The views in this article are those of the authors and do not necessarily reflect those of the Office of the Comptroller of the Currency or the U.S. Department of the Treasury.

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