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CEO political ideology and mergers and acquisitions decisions

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  • Elnahas, Ahmed M.
  • Kim, Dongnyoung

Abstract

We examine the relation between CEOs political ideology and their firms' investment decisions, particularly their M&A decisions. Employing individual financial contributions data for the period from 1993 to 2006, we find that firm's investment decisions vary with CEO's political ideology. Our evidence indicates that Republican CEOs are less likely to engage in M&A activities. When they do undertake acquisitions, they are more likely to use cash as the method of payment, and their targets are more likely to be public firms and to be from the same industry. Further, Republican CEOs tend to avoid high information asymmetry acquisitions that involve the use of “earnout” clauses. Conditional on the merger, CEO political ideology appears to have a significantly impact on long-run firm valuation. However, we find no evidence that CEO political ideology creates value in the short-run. All our results are robust to controlling for CEO overconfidence.

Suggested Citation

  • Elnahas, Ahmed M. & Kim, Dongnyoung, 2017. "CEO political ideology and mergers and acquisitions decisions," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 162-175.
    • Handle: RePEc:eee:corfin:v:45:y:2017:i:c:p:162-175
    DOI: 10.1016/j.jcorpfin.2017.04.013
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    More about this item

    Keywords

    CEO political ideology; Mergers and acquisitions; Conservatism; Overconfidence;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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