Economic Impact of Political Barriers to Cross-Border Acquisitions: An Empirical Study of CNOOC’s Unsuccessful Takeover of Unocal

61 Pages Posted: 18 Jun 2009 Last revised: 23 Oct 2012

See all articles by Kam-Ming Wan

Kam-Ming Wan

Hanken School of Economics

Ka-Fu Wong

The University of Hong Kong - School of Economics and Finance

Date Written: June 17, 2009

Abstract

In 2005, the US Congress challenged the acquisition by CNOOC (a Chinese state-owned enterprise) of Unocal (a US firm). This challenge creates a political barrier for foreign companies to acquire US oil companies. This paper examines the stock price reaction of US oil companies to this political opposition. Using an event study methodology, we find that this political barrier resulted in a substantial decline in the market value of the US oil companies. For a period of 44 days, during which six anti-CNOOC-takeover political events occurred, the cumulative decline in the market value of a portfolio of 13 US oil refining firms was $47.5 billion and that of a portfolio of 66 US oil and gas exploration firms was $11.4 billion. This study is the first to analyze and quantify the stock price reaction of US non-merging firms to political barriers to cross-border acquisitions. It also has policy implication regarding the recent enactment of the Foreign Investment and National Security Act of 2007.

Keywords: Political Barriers, Takeover Premium, Cross-border Acquisitions

JEL Classification: Q48, G14, G34, G38, L51

Suggested Citation

Wan, Kam-Ming and Wong, Ka-Fu, Economic Impact of Political Barriers to Cross-Border Acquisitions: An Empirical Study of CNOOC’s Unsuccessful Takeover of Unocal (June 17, 2009). Journal of Corporate Finance, Volume 15, Issue 4, pp. 447-468, 2009, Available at SSRN: https://ssrn.com/abstract=1421550

Kam-Ming Wan (Contact Author)

Hanken School of Economics ( email )

PB 287
Vaasa, Vaasa 65101
Finland

Ka-Fu Wong

The University of Hong Kong - School of Economics and Finance

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong