Extreme negative events and corporate acquisitions: Terrorist attacks

We examine the effect of extreme negative events on the perception of corporate managers and their merger and acquisition decisions. As terrorist attacks cause fear and anxiety, leading to political or private benefit to the perpetrator, and are not executed to affect corporate policy decision-making, these events represent clean, exogenous shocks to the crucial assumption and create appropriate conditions for applying the difference-in-differences approach. Taking advantage of these exogenous shock events, we apply a difference-in-differences methodology to minimize the risk of endogeneity bias. Our empirical results show that terrorist attacks significantly and negatively affect the acquisition activities and acquisition performance of acquirers.