Bilateral Political Relations and Cross-Border M&As

Friends for the Benefits: The Effects of Political Ties on Sovereign Borrowing Conditions

“…Yanagizawa-Drott (2017) who document that US media coverage of human rights violations co-vary with US State interests. Closer to our work isGarmaise and Natividad (2013) who find that political alignment (with lender countries) influence the cost of financing of domestic Micro-Finance Institutions and the consequent non-commercial (e.g development) lending from these institutions as well asJohn et al (2016) who show that closer bilateral political ties (government to government) are associated with more merger…”

“…Nevertheless, we do not study the medium to long-term consequences of these effects. The overall macroeconomic effects may be larger given spillovers of sovereign borrowing conditions to private investment and credit markets (Almeida et al, 2017;Boehmer and Megginson, 1990;Chen et al, 2013;Lyon and King, 2016;John et al, 2016;Ambrocio et al, 2019). Our focus has also been solely on the US as a donor country.…”

The relevance of bilateral political relations between countries for the completion stage premium of cross-border mergers and acquisitions

“…Previous studies on bilateral political relations have mainly focused on analyzing corporate's FDI, such as location selection for foreign investment (e.g., Li et al, 2018a, b), FDI (e.g., Holburn and Zelner, 2010;Amore and Corina, 2021) and trade (e.g., Kastner, 2007;Davis et al, 2019), arguing that good bilateral political relations and a better quality of the institutional environment in the host country promote the scale and investment success of corporate's FDI. A small number of studies have attached to the area of corporate crossborder M&A, examining the impact of bilateral political relations on cross-border M&A (John et al, 2016), initial M&A premiums (Bertrand et al, 2016), investors' response to the acquisition premium in cross-border M&A transactions (Fieberg et al, 2021), overseas market performance (Wang et al, 2020) and the role of political affinity on firms' post-acquisition performance from legitimacy-based view of political risk (Hasija et al, 2020). Scholars argue that friendly bilateral political relations can provide home country multinationals with host country institutional advantages that can help reduce corporate cross-border M&A transaction costs, thereby enhancing M&A success and post-merger performance.…”

“…3. Hypothesis 3.1 The impact of bilateral political relations between countries on CSPCMA In some cross-border transactions in developed and emerging economies, the target or acquirer is owned by its government and is therefore subject to direct government involvement (John et al, 2016). Good bilateral political relations facilitate the establishment and improvement of various rules, norms and decision-making procedures for cross-border transactions between the two governments, which help to not only portray the beliefs and interest preferences of corporate investors but also improve the quality of information exchange between companies, thus reducing transaction costs and uncertainties caused by incomplete or asymmetric information.…”

“…Considering that the cross-border M&A activities of enterprises are inevitably affected by bilateral political relations between countries (e.g., John et al, 2016;Zhang and Mauck, 2018;Hasija et al, 2020), understanding the influence of bilateral political relations on cross-border M&A premiums is gradually recognized as an important issue in the field of cross-border M&A (e.g., Bertrand et al, 2016;Fieberg et al, 2021). While prior studies have advanced our knowledge respecting the relevance of political affinity on the initial acquisition premium and the moderating effect of host government intervention for this relationship (Bertrand et al, 2016), leaving the unanswered question of whether and when bilateral political relations can affect the completion stage premium of cross-border mergers and acquisitions (CSPCMA).…”