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Elnahas Research Featured in Wall Street Journal

Illustration: Phil Foster for the Wall Street Journal

This week, the Wall Street Journal published an article about a research paper of an EKU finance professor, Dr. Ahmed Elnahas.

Grand Old Purchase: Republican-Run Companies Do Better With Acquisitions

A study shows that acquisitions by companies with Republican CEOs tend to add value to the acquirer, unlike those by companies with non-Republican leaders

Do Republican and non-Republican chief executives run their companies differently? When it comes to mergers and acquisitions, it would seem they do.

According to a recent study, companies run by Republicans make fewer acquisitions. But when they do, those acquisitions tend to boost the value of their companies in the long run, while acquisitions by companies that non-Republicans run tend to lower the value of their companies.

Five years after an acquisition, the study says, the average cumulative return on the stock of the acquiring company, over and above the return investors could have expected by investing in comparable stocks, was 11.27% for Republican-run companies during the period that was studied. For companies headed by non-Republicans, that same return averaged negative 9.46%.

“I’m not saying Republican managers are better,” says Ahmed Elnahas, an assistant professor of finance at Eastern Kentucky University and the study’s lead author, “but it’s probably because they’re more conservative in making financial decisions.”

The study also found that Republican CEOs tend to acquire public companies, preferably within the same industry, and to pay cash.

The chief executives were identified as Republican or non-Republican by looking at their personal political contributions from 1993 to 2006. To be considered a Republican, all of a CEO’s contributions had to be Republican. All other executives were lumped together as non-Republicans. The study, which appears in the August issue of the Journal of Corporate Finance, covers 1,007 publicly traded U.S. companies and 2,100 CEOs. About 40% of the CEOs were identified as Republicans.

The tendency toward cash acquisitions suggests Republican CEOs “want to finish quickly without high chances of rejections,” Dr. Elnahas says. The report points to earlier studies showing that stock bids for acquisitions delay offers in the U.S. because of security-registration and shareholder-approval requirements. It also says cash bids enable quicker completion of deals because they reduce the risk of competitive bids, and the risk of bids being rejected by the target company’s management, because the value of a cash bid remains steady while the value of a stock bid can fluctuate.

The report suggests one reason for Republican CEOs’ preference for acquiring public rather than private companies is that it’s easier to understand a public company’s value, especially when it’s from the same industry. It notes that the Republican CEOs also tended to avoid earn-outs—deals where part of the payment depends on some measure of the acquired company’s performance after the acquisition—which make valuation more difficult.

Dr. Elnahas says he has a long list of additional studies to work on to examine the effect of political ideology on corporate decision making.

“Political ideology affects every aspect of life, and it’s hard to believe it doesn’t have any impact on corporations,” he says.

“Yet very little studying has been done. I felt it’s a very big gap.”

Ms. Gage is a writer in San Jose, Calif. She can be reached at

Appeared in the August 14, 2017, print edition.

Published on August 13, 2017

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