The Impact of Country-Dyadic Military Conflicts on Market Reaction to Cross-Border Acquisitions

Our work examines the impact of country-dyadic military conflicts on market reaction to cross-border acquisitions (CBAs). Building on intergroup relations research, we theorize that country-dyadic military conflicts, weighted by their severity, trigger intergroup conflicts between the merging firms and, in so doing, hamper market reaction to CBA. Drawing on a sample that comprises 7321 CBAs between 1988 and 2011, we find that country-dyadic military conflicts reduce acquirer returns following CBA announcements and that cultural similarity between acquirer and target countries weakens the relationship between military conflicts and market reaction to CBA while colonial ties between the countries, the target country’s national pride, and the target’s firm size reinforce the relationship. Our study contributes to an emerging body of work that examines the role of international politics/relations in international business.