Politicians' risk aversion and stake-sought in cross-border acquisitions

While scholars have highlighted the significant role of institutions in cross-border acquisition—a key yet high-risk activities in economic globalization, the influence of home country government, particularly the governmental officials, remains less explored. Governmental officials can wield their influence on firms to align corporate actions with their political incentives, which vary according to their career stage. We propose that officials at the end of their terms are more risk-averse and, therefore, tend to discourage high-risk business. Focusing on cross-border acquisitions by Chinese firms, we found that during the one-year period before political turnover, these acquisitions manifest in lower stake sought. Additional analyses suggest that the reduction in the risk level of cross-border acquisitions during political turnover periods varies according to the politician's risk-taking propensity and firms' vulnerability to the politician's influence in their jurisdictions. By highlighting officials' political incentives associated with political turnover, this study provides novel insights into research on cross-border acquisitions in emerging markets.