Political ideology in M&A

We study the effect of shared political identity between acquirers and targets on merger outcomes. In a sample of public US mergers, we find that targets are more likely to merge with firms of similar political orientation. We document that acquirers in politically matched mergers experience significantly worse cumulative abnormal returns around the merger announcement, compared to their non‐politically matched counterparts. Acquirers in those mergers pay lower takeover premiums, experience worse post‐merger operating performance, retain more from the target management, and receive larger bonuses. Our results indicate that politically matched mergers create less value to shareholders.