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How do US investors perceive the risk of local political corruption? Evidence from acquisition announcement

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  • Xuejun Jiang
  • Louise Lu

Abstract

This study examines the impact of local political corruption on investors’ evaluation of firms’ mergers and acquisitions (M&As) in the US. Using the number of corruption convictions of government officials reported by the US Department of Justice, we find that acquirers in more corrupt court districts experience lower acquirer announcement returns, lower combined acquirer and target announcement returns, and are less likely to complete acquisitions. We further find that the relation between local political corruption and acquirer announcement returns is worsened when acquirers operate primarily in the headquarters state. Overall, the results suggest that local political corruption has an adverse impact on investors’ evaluation of a firm’s M&A profitability.

Suggested Citation

  • Xuejun Jiang & Louise Lu, 2021. "How do US investors perceive the risk of local political corruption? Evidence from acquisition announcement," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 885-912, March.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:1:p:885-912
    DOI: 10.1111/acfi.12596
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