Skip to main content Accessibility help
×
Home

Policy Uncertainty and Mergers and Acquisitions

  • Nam H. Nguyen and Hieu V. Phan

Abstract

This research examines the relationship between policy uncertainty and mergers and acquisitions (M&As). We find that policy uncertainty is negatively related to firm acquisitiveness and positively related to the time it takes to complete M&A deals. In addition, policy uncertainty motivates acquirers to use stock for payment and to pay lower bid premiums. Acquirers, on average, create larger shareholder value from M&A deals undertaken during periods of high policy uncertainty, which is attributable to their prudence as well as the wealth transfer from the financially constrained targets to acquirers.

    • Send article to Kindle

      To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      Policy Uncertainty and Mergers and Acquisitions
      Available formats
      ×

      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      Policy Uncertainty and Mergers and Acquisitions
      Available formats
      ×

      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      Policy Uncertainty and Mergers and Acquisitions
      Available formats
      ×

Copyright

Corresponding author

* Nguyen, nam_nguyen@uml.edu, School of Management, Université du Québec à Montréal; Phan (corresponding author), hieu_phan@uml.edu, Manning School of Business, University of Massachusetts Lowell.

Footnotes

Hide All
1

This paper was written while Nguyen was a Ph.D. student at the University of Massachusetts Lowell. We are especially grateful to Art Durnev (the referee), whose comments on the paper substantially improved the exposition and analyses. We also appreciate the helpful comments from Julian Atanassov, Brian Baugh, Sudip Datta, Kathleen Farrell, Geoffrey Friesen, Steven Freund, Jarrad Harford (the editor), Mai Iskandar-Datta, Anand Jha, Sedzro Komlan, Tunde Kovacs, Manoj Kulchania, Saira Latif, Kooli Maher, Ranjan D’Mello, Stas Nikolova, Shakil Quayes, Guay Richard, Emre Unlu, John Wagster, Jing Wang, Liying Wang, Julie Wu, and Mouchette Xavier as well as session participants at the 2016 Financial Management Association Doctoral Consortium and seminar participants at the University of Massachusetts Lowell, University of Nebraska Lincoln, Université du Québec à Montréal, and Wayne State University. We thank Di Huang for sharing the fuzzy matching codes. All errors remain the sole responsibility of the authors.

Footnotes

References

Hide All
Abel, A. B.Optimal Investment under Uncertainty.” American Economic Review, 73 (1983), 228233.
Abel, A. B., and Eberly, J. C.. “A Unified Model of Investment under Uncertainty.” American Economic Review, 5 (1994), 13691384.
Almeida, H., and Campello, M.. “Financial Constraints, Asset Tangibility, and Corporate Investment.” Review of Financial Studies, 20 (2007), 14291460.
Baker, S.; Bloom, N.; and Davis, S.. “Measuring Economic Policy Uncertainty.” Quarterly Journal of Economics, 131 (2016), 15931636.
Barber, B., and Lyon, J.. “Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 41 (1996), 359399.
Barber, B., and Lyon, J.. “Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 43 (1997), 341372.
Bebchuk, L.; Cohen, A.; and Ferrell, A.. “What Matters in Corporate Governance? Review of Financial Studies, 22 (2009), 783827.
Bernanke, B. S.Irreversibility, Uncertainty, and Cyclical Investment.” Quarterly Journal of Economics, 98 (1983), 85106.
Bhagwat, V.; Dam, R.; and Harford, J.. “The Real Effect of Uncertainty on Merger Activity.” Review of Financial Studies, 29 (2016), 30003034.
Bialkowski, J.; Gottschalk, K.; and Wisniewski, T. P.. “Stock Market Volatility around National Elections.” Journal of Banking and Finance, 32 (2008), 19411953.
Bloom, N.The Impact of Uncertainty Shocks.” Econometrica, 77 (2009), 623685.
Bloom, N.; Bond, S.; and Reenen, J.. “Uncertainty and Investment Dynamics.” Review of Economic Studies, 74 (2007), 391415.
Boutchkova, M.; Doshi, H.; Durnev, A.; and Molchanov, A.. “Precarious Politics and Return Volatility.” Review of Financial Studies, 25 (2012), 11111154.
Brogaard, J., and Detzel, A.. “The Asset-Pricing Implications of Government Economic Policy Uncertainty.” Management Science, 61 (2015), 318.
Caballero, R.On the Sign of the Investment-Uncertainty Relationship.” American Economic Review, 81 (1991), 279288.
Dimopoulos, T., and Sacchetto, S.. “Preemptive Bidding, Target Resistance, and Takeover Premiums.” Journal of Financial Economics, 114 (2014), 444470.
Dixit, A., and Pindyck, R.. Investment under Uncertainty. Princeton, NJ: Princeton University Press (1994).
Furfine, C. H., and Rosen, R.. “Mergers Increase Default Risk.” Journal of Corporate Finance, 17 (2011), 832849.
Gilchrist, S.; Sim, J.; and Zakrajšek, E.. “Uncertainty, Financial Frictions, and Investment Dynamics.” Working Paper, National Bureau of Economic Research (2014).
Gompers, P. A.; Ishii, J. L.; and Metrick, A.. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107155.
Greenwald, B., and Stiglitz, J.. “Macroeconomic Models with Equity and Credit Rationing.” In Asymmetric Information, Corporate Finance, and Investment, Hubbard, R. G., ed. Chicago, IL: University of Chicago Press (1990), 1542.
Gulen, H., and Ion, M.. “Policy Uncertainty and Corporate Investment.” Review of Financial Studies, 29 (2016), 523564.
Harford, J.Corporate Cash Reserves and Acquisitions.” Journal of Finance, 54 (1999), 19691997.
Hartman, R.The Effects of Price and Cost Uncertainty on Investment.” Journal of Economic Theory, 5 (1972), 258266.
Heckman, J.The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models.” Annals of Economic and Social Measurement, 5 (1976), 475492.
Heckman, J.Sample Selection Bias as a Specification Error.” Econometrica, 47 (1979), 153161.
International Monetary Fund. World Economic Outlook: Coping with High Debt and Sluggish Growth. Washington, DC: IMF Press(2012).
Jens, C.Political Uncertainty and Investment: Causal Evidence from U.S. Gubernatorial Elections.” Journal of Financial Economics, (2017), forthcoming.
Julio, B., and Yook, Y.. “Political Uncertainty and Corporate Investment Cycles.” Journal of Finance, 67 (2012), 4583.
Jurado, K.; Ludvigson, S.; and Ng, S.. “Measuring Uncertainty.” American Economic Review, 105 (2015), 11771216.
Lyon, J.; Barber, B.; and Tsai, C.. “Improved Methods for Tests of Long-Run Abnormal Stock Returns.” Journal of Finance, 54 (1999), 165201.
Masulis, R.; Wang, C.; and Xie, F.. “Corporate Governance and Acquirer Returns.” Journal of Finance, 62 (2007), 18511889.
McCarty, N.“The Policy Consequences of Partisan Polarization in the United States.” Paper Presentation, Seminar of Institutions and Positive Political Theory, University of California, Berkeley (2004).
McCarty, N.; Poole, K.; and Rosenthal, H.. Income Redistribution and the Realignment of American Politics. Washington, DC: SEI Press (1997).
McDonald, R., and Siegel, D.. “The Value of Waiting to Invest.” Quarterly Journal of Economics, 101 (1986), 707728.
Moeller, S.; Schlingemann, F.; and Stulz, R.. “Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave.” Journal of Finance, 60 (2005), 757782.
Officer, M.Termination Fees in Mergers and Acquisitions.” Journal of Financial Economics, 69 (2003), 431467.
Panousi, V., and Papanikolaou, D.. “Investment, Idiosyncratic Risk, and Ownership.” Journal of Finance, 67 (2012), 11131148.
Pástor, L., and Veronesi, P.. “Political Uncertainty and Risk Premia.” Journal of Financial Economics, 110 (2013), 520545.
Phan, H. V.Inside Debt and Mergers and Acquisitions.” Journal of Financial and Quantitative Analysis, 49 (2014), 13651401.
Poole, K., and Rosenthal, H.. Congress: A Political-Economic History of Roll Call Voting. New York, NY: Oxford University Press (2000).
Rodrik, D.Policy Uncertainty and Private Investment in Developing Countries.” Journal of Development Economics, 36 (1991), 229242.
Sharpe, S. A.Financial Market Imperfections, Firm Leverage, and the Cyclicality of Employment.” American Economic Review, 84 (1994), 10601074.
Shleifer, A., and Vishny, R. W.. “Liquidation Values and Debt Capacity: A Market Equilibrium Approach.” Journal of Finance, 47 (1992), 13431366.
Stock, J., and Watson, M.. “Disentangling the Channels of the 2007–2009 Recession.” National Bureau of Economic Research Working Paper 18094 (2012).
Type Description Title
UNKNOWN
Supplementary materials

Nguyen and Phan supplementary material
Nguyen and Phan supplementary material

 Unknown (190 KB)
190 KB

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed