Economic policy uncertainty and cross-border mergers and acquisitions

Paudyal, Krishna and Thapa, Chandra and Koirala, Santosh and Aldhawyan, Sulaiman (2021) Economic policy uncertainty and cross-border mergers and acquisitions. Journal of Financial Stability. ISSN 1572-3089 (In Press)

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Abstract

We examine the effects of economic policy uncertainty (EPU) on cross-border mergers and acquisitions (CBA). The results suggest that a higher degree of EPU at home retards the number and volume of inbound CBA deals. However, the inverse relationship between EPU and inward CBA is positively moderated by the host country's quality of institution, business environment and political risk. The bilateral acquirer-target country-pair investigation reveals that while higher EPU in the target’s domicile deters inbound CBA, higher EPU in the acquirer's nation is positively associated with higher number and volume of outbound CBA deals. Finally, on the announcement of the deals, targets (acquirers) based in countries with a larger increase in EPU gain less (more) than the targets (acquirers) based in countries with a smaller increase in EPU. These findings imply that countries aiming to attract cross-border investments should strive to mitigate economic policy-related uncertainties.

ORCID iDs

Paudyal, Krishna ORCID logoORCID: https://orcid.org/0000-0002-0372-304X, Thapa, Chandra, Koirala, Santosh and Aldhawyan, Sulaiman;
CORE (COnnecting REpositories)