Volume 56, Issue 1 p. 55-83
ORIGINAL ARTICLE

Political corruption shielding and corporate acquisitions

Ashrafee Tanvir Hossain

Ashrafee Tanvir Hossain

Faculty of Business Administration, Memorial University of Newfoundland, St. John's, Newfoundland and Labrador, Canada

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Lawrence Kryzanowski

Corresponding Author

Lawrence Kryzanowski

Department of Finance, John Molson School of Business, Concordia University, Montreal, Quebec, Canada

Correspondence

Lawrence Kryzanowski, Department of Finance, John Molson School of Business, Concordia University, 1455 de Maisonneuve Blvd West, Montreal, QC H3G 1M8.

Email: lawrence.kryzanowski@concordia.ca

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First published: 20 August 2020
Citations: 23

Abstract

Corruption includes rent-seeking behavior by public officials (e.g., lavish in-kind benefits and monetary kickbacks for contracts/permits/regulatory leniency, improper political contributions/support, etc.) that can negatively affect firm valuations, performances, and strategic choices. Shielding strategies are used to diminish rent-seeking attractiveness of firms. Acquisitions provide a better channel than cash or leverage for assessing the wealth effects of shielding strategies. We find that the mean 3-day announcement returns for acquirers for a large sample of U.S. domestic acquisitions between 1990 and 2014 is significantly lower for firms headquartered in relatively higher corruption states. Our results survive an array of robustness tests.

CONFLICT OF INTEREST

The authors declare no conflict of interest.

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