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.
Nguyen, Nam and Phan, Hieu V. and Simpson, Thuy, Political Corruption and Mergers and Acquisitions (September 21, 2019). Available at SSRN: https://ssrn.com/abstract=3185775 or http://dx.doi.org/10.2139/ssrn.3185775