Does Terrorism Affect Acquisitions?

Nguyen, Tung; Petmezas, Dimitris; Karampatsas, Nikolaos

doi:10.1287/mnsc.2022.4506

Does Terrorism Affect Acquisitions?

Nguyen, Tung; Petmezas, Dimitris; Karampatsas, Nikolaos

Authors

Tung Nguyen

Professor Dimitris Petmezas dimitris.petmezas@durham.ac.uk
Professor

Nikolaos Karampatsas

Abstract

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 Additionally, in terrorism-stricken areas, target firms are associated with a lower share of synergies, withdrawn deals rise, and acquirers are more likely to get involved in acquisitions of target firms located in different metropolitan statistical areas than their own or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 over the latter.

Citation

Nguyen, T., Petmezas, D., & Karampatsas, N. (2023). Does Terrorism Affect Acquisitions?. Management Science, 69(7), 4134-4168. https://doi.org/10.1287/mnsc.2022.4506

Journal Article Type	Article
Acceptance Date	Jan 20, 2022
Online Publication Date	Aug 8, 2022
Publication Date	2023-07
Deposit Date	Feb 4, 2022
Publicly Available Date	Feb 4, 2022
Journal	Management Science
Print ISSN	0025-1909
Electronic ISSN	1526-5501
Publisher	Institute for Operations Research and Management Sciences
Peer Reviewed	Peer Reviewed
Volume	69
Issue	7
Pages	4134-4168
DOI	https://doi.org/10.1287/mnsc.2022.4506
Public URL	https://durham-repository.worktribe.com/output/1216118