Media Narratives on Foreign Countries and Cross-Border Mergers and Acquisitions
Abstract
Employing a novel dataset of 304,071 U.S. news articles covering 44 countries, we investigate the impact of U.S. media-driven narratives of foreign countries on the cross-border merger and acquisition (M&A) activity of U.S. firms. We find that media narratives significantly affect the M&A decisions of corporate managers and corresponding investor reactions. The effect is driven by negative narratives while positive narratives have no impact. Specifically, a more negative narrative toward a foreign country leads U.S. firms to be more likely to abandon previously initiated M&A attempts, less likely to initiate cross-border M&As within that country and elicits more negative stock market reactions to initiated M&As within that country. Distinct from the informational content of news coverage, we provide evidence that negative narratives per se influence M&A decisions, indicating that media-driven narratives of foreign countries shape both corporate and investor behavior in international markets.