This study is an examination of how political risk conditions relate to managerial decisions to pursue mergers and acquisitions (M&As). In contrast with most studies that investigate political uncertainty at macro-levels, a firm-specific measure is used to examine heterogeneous firm-level exposures to political risk. Findings indicate that political risk is negatively related to the likelihood of M&A announcements, mediated by financial constraints and managerial risk preferences. After deals are completed, political risk is also negatively associated with firm performance. Implications for shareholders, managers, and policymakers are discussed.

JEL Classification G32 G34

Keywords: financial constraints, firm-level political risk, M&A, political uncertainty, risk preference​