Having Former Politicians on Board Helps Complete Mergers
Study finds appointing former politicians and regulators to boards of directors or management teams influences corporate mergers and acquisitions and improves the financial performance of acquiring companies.
The study found that corporations with political connections are more likely to acquire the companies they bid on and avoid regulatory delay or denial.
While AT&T鈥檚 recently announced plans to acquire media giant Time Warner is drawing the attention of federal antitrust authorities, the company鈥檚 political connections greatly enhance its chances of completing the deal, says a 红玫瑰社区 professor who has studied decades of mergers and acquisitions.
鈥淚 would say that the probability that the merger will get past regulators is relatively high,鈥 said , assistant professor of finance in FAU鈥檚 College of Business. 鈥淲e found that having these political connections greatly improves the firm鈥檚 chances of closing the deal.鈥
Javakhadze co-authored a new study with colleagues , Ph.D., director of the Financial Research Institute at the University of Missouri, and , Ph.D., assistant professor at Indiana State University, that found appointing former politicians and regulators to boards of directors or management teams influences corporate mergers and acquisitions and improves the financial performance of the acquiring companies.
AT&T is certainly politically connected, counting among its executives and board of directors a former deputy U.S. Trade representative with the rank of ambassador; a former special advisor in the White House; a former chairman of the U.S. Federal Communications Commission; and a former chair of the White House Council of Economic Advisers.
The study found that corporations with political connections like AT&T are more likely to acquire the companies they bid on and avoid regulatory delay or denial. The more politically connected the company, the higher the merger premium paid in the deal. Returns during the announcement period show that investors recognize that bids by politically connected acquirers are more likely to create firm value. Connected corporations also enjoy superior post-merger financial and operating performance, the study found.
Examining the effect that the addition of a politically connected individual to a firm鈥檚 management team/board of directors has on the merger behavior of a sample of publicly traded companies, they manually went over proxy statements from every firm, going back decades.
They also found that connected firms make more bids and acquisitions than non-connected firms and there is an increase in bid and acquisition activity after former politicians or regulators are appointed to a firm鈥檚 board or management team.
鈥淭his might be due to the unique insights regarding issues such as regulatory process and delay, government contracting needs and procedures, or pending legislation that these political connections can provide to the acquiring firm,鈥 they wrote in their paper, 鈥,鈥 recently published in the Journal of Corporate Finance.听
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