We provide a holistic view of how uncertainties and commitments influence risk perceptions of investors to cross-border acquisitions (CBAs). Specifically, we examine the effect of discontinuous uncertainties of terrorist attacks in the host country on announcement returns. We further probe into the moderating effect of more continuous uncertainties such as political regime and political relations on the relationship between terrorism and announcement returns. We additionally account for firms’ commitment in the form of target firms’ asset fungibility in altering investors’ risk perceptions. Drawing from the bargaining theory, we reveal that in host countries with higher terrorism intensity, targets have significantly low bargaining power and foreign acquirers would negotiate better deal terms, resulting in positive market reactions to their CBA announcement. We further discover that this effect is stronger in host countries with democratic governments and weaker when there is greater political hostility between home and host countries and acquirers seek less fungible resources. We test our theoretical model on a sample of 6,556 cross-border acquisitions by US firms and find evidence to support our claims.
