Does Terrorism Affect Acquisitions?
57 Pages Posted: 21 Sep 2018 Last revised: 28 Apr 2021
Date Written: April 27, 2021
Using terrorist attacks as an exogenous shock to uncertainty, we provide evidence that firms located near terrorism-stricken areas are less likely takeover targets for two years after the attack and receive lower acquisition premiums. The latter finding is reflected in lower target firm abnormal returns and synergy gains. Additionally, in terrorism-stricken areas, target firms are associated with lower share of synergies, withdrawn deals rise, and acquirers are more likely to get involved in cross-MSA acquisitions or acquire faraway target firms. We attribute our results to the real options theory which predicts that high uncertainty increases the value of the option to delay investments. Additionally, we show that the impact on target firm human capital and acquirer CEO uncertainty and fear are potential sources of terrorism-induced uncertainty with the former source prevailing the latter.
Keywords: Terrorism; Mergers and Acquisitions (M&As); Real Options; Uncertainty; Human Capital
JEL Classification: G14, G34, J31
Suggested Citation: Suggested Citation