Friends in the Right Places: The Effect of Political Connections on Corporate Merger Activity

68 Pages Posted: 16 Nov 2016 Last revised: 6 Dec 2016

See all articles by Stephen P. Ferris

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Reza Houston

Indiana State University - Scott College of Business

David Javakhadze

Florida Atlantic University

Date Written: September 3, 2015

Abstract

This study examines how the appointment of former politicians and regulators to boards of directors or management teams influences corporate acquisition activity and performance. We find that bidders with political connections are more likely to acquire targets and avoid regulatory delay or denial. The merger premium paid increases with political connectedness. The announcement period returns show that investors recognize that bids by politically connected acquirers are more likely to create firm value. Connected bidders make more bids and bid on larger targets. Connected acquirers also enjoy superior post-merger financial and operating performance.

Keywords: Political connections, Mergers, Acquisitions, Antitrust law

JEL Classification: G34, G38, K21

Suggested Citation

Ferris, Stephen P. and Houston, Reza and Javakhadze, David, Friends in the Right Places: The Effect of Political Connections on Corporate Merger Activity (September 3, 2015). Journal of Corporate Finance, Vol. 41, 2016, Available at SSRN: https://ssrn.com/abstract=2869828 or http://dx.doi.org/10.2139/ssrn.2869828

Stephen P. Ferris (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Reza Houston

Indiana State University - Scott College of Business ( email )

800 Sycamore Street
Terre Haute, IN 47809
United States

David Javakhadze

Florida Atlantic University ( email )

College of Busines
777 Glades Road
Boca Raton, FL 33433
United States
561-297-2914 (Phone)

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