Keywords

tobacco, acquisitions, diversification, expropriation costs

Abstract

While it is well established that diversifying acquisitions by large, cash-rich firms destroy shareholder wealth, we document positive abnormal returns to such acquisitions in the tobacco industry. We show that these abnormal returns are associated with proxies for lower expected expropriation costs. Specifically, we show that wealth creation increases in the degree of domestic geographic expansion afforded by the acquisition (increasing tobacco firms’ influence in more political districts) and in the liquidity of tobacco firms’ assets (converting cash to harder-to-expropriate operating assets). We also show that the threat of expropriation constrains payments to shareholders before expropriation becomes certain in 1998.

Original Publication Citation

Beneish, M., I. Jansen, M. Lewis, and N. Stuart. 2008. “Diversification to Mitigate Expropriation in the Tobacco Industry”, Journal of Financial Economics 89: 136–157.

Document Type

Peer-Reviewed Article

Publication Date

2008

Publisher

Journal of Financial Economics

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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