Enough is Enough: Policy Uncertainty and Acquisition Abandonment

Abstract

This study investigates how policy uncertainty affects the acquisition process during the post-announcement period. Utilizing a sample of Australian mining sector acquisitions over 1998-2017, we find that rising policy uncertainty after initial acquisition announcements is associated with delays in deal completion. In addition, prolonged high policy uncertainty plays a critical role in triggering acquisition abandonment. Further, the stock market reacts less negatively to deal abandonment decisions made amid protracted policy uncertainty. The muted market reactions are also associated with managers’ explanations for deal abandonment. Overall, our findings highlight that policy uncertainty is an important “deal-breaker” in acquisitions.