Do political ideology and polarization place a discount on M&A premiums?

• Examine the impact of election-year ideology and polarization on M&A premiums. • Premiums are higher in left-leaning countries and lower in right-leaning ones. • Extreme polarization and close-call elections do not affect M&A premiums. • Investors incorporate target-country ideology into M&A deal valuations. This study investigates whether M&A premiums are influenced during election years by a country’s political ideology, the degree of political polarization, and the presence of closely contested elections. Using a dataset spanning from 2000 to 2022, comprising 1646 announced deals in election years across 29 countries, we find that political ideology significantly affects M&A premiums. Premiums tend to be lower in countries leaning to the right and higher in those left-leaning ones. However, these effects are not driven by political polarization at ideological extremes, by narrowly decided elections, or by the polarization level of the acquirer’s country. Overall, our findings suggest that investors incorporate the political orientation of the target country into their valuation of M&A deals during election years.