Difference in Political Ideology and Its Impact on Mergers and Acquisitions

ABSTRACT We examine the extent to which ideological differences between acquiring and target firms influence the likelihood of deal completion and the magnitude of announcement returns. Our empirical analysis shows that deals are 26% more likely to be completed when the political ideologies of the acquirer and target are closely aligned. This result holds even after controlling for widely accepted deal characteristics influencing both deal completion and market response to deal announcements. Furthermore, acquirers ideologically closer to their targets achieve announcement returns that are 1 to 2 percentage points higher than their more distant counterparts. This effect persists even after controlling for geographic proximity and other established determinants of announcement returns. These findings indicate that corporate political ideology plays a significant role in determining the success of mergers and acquisitions.