Do state visits affect cross-border mergers and acquisitions?

https://doi.org/10.1016/j.jcorpfin.2020.101800Get rights and content
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Highlights

  • Merger activity increases significantly after political state visits.

  • The effects are isolated to deals between visiting and host countries.

  • Evidence from instrumental variable analysis points towards a causal effect.

  • Political visits provide opportunities for business networking.

  • Additional channels are a reduction in investment uncertainty and cultural barriers.

Abstract

This paper studies the relation between state visits and cross-border merger and acquisition (M&A) activity. Based on 1161 state visits and 11,531 cross-border acquisitions, we find that corporations from visiting countries are more likely to acquire corporations in countries hosting the visit. Domestic acquisitions in the host country or M&As with non-visiting countries are not elevated. Evidence from instrumental variable analysis points towards a causal effect of state visits on M&A activity. Further analysis shows that the elevated M&A activity originating from visiting countries can be attributed to business networking and a reduction in investment uncertainty and cultural barriers.

JEL classifications

G30
G34
F21

Keywords

Political state visits
Cross-border acquisitions
Cultural differences
Networking
Investment uncertainty

Cited by (0)

We would like to thank Douglas Cumming (the Editor), two anonymous referees, Viral Acharya, Leonidas Barbopoulos, Jo Danbolt, Manapol Ekkayokkaya, Michael (Jie) Guo, Lerong He, Kihun Kim, Christos Mavis, Dimitrios Petmezas, Antonios Siganos, David Yermack and seminar participants at the Adam Smith Business School seminar series, seminar participants at the Chulalongkorn Business School, and participants at the 2019 Cross Country Perspective in Finance Symposium and the INFINITI Conference on International Finance 2019 for helpful comments and suggestions. E-mail correspondence to [email protected].