Does geopolitical risk matter for corporate investment decisions? Evidence from cross?border acquisitions

Heightened geopolitical risk has become the new normal. We study effects of risks on cross-border acquisition activity. Using military alliance to proxy for degree risks, we find that formation between two countries is associated with greater flows. recent North Atlantic Treaty Organization enlargements as identification strategy, stronger alliance, especially defense pacts. One important channel can substitute target countries’ institutional quality and minimize extreme threats faced by acquirers. poor governance weaker legal enforcement benefit more from receiving inbound acquisitions major powers. These findings highlight role in global market corporate control reducing risks.