The impact of monetary policy on M&A outcomes

Samer Adra, Leonidas Barbopoulos, Anthony Saunders

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    3 Citations (Scopus)
    67 Downloads (Pure)

    Abstract

    Monetary policy influences a wide range of Mergers and Acquisitions (M&A) outcomes. First, an increase in the federal funds rate predicts a negative market reaction to M&A announcements, an increase in the likelihood of deal withdrawal, and significant financing challenges for the acquirer in the post-acquisition phase. Second, M&As announced during periods of high monetary policy uncertainty are associated with significant declines in acquirer value. This negative market reaction reflects a unique discount to compensate for the high riskiness of M&As in an uncertain monetary environment. Finally, we show that monetary contraction, rather than monetary policy uncertainty, is a key contributor to the decline in aggregate M&A activity.
    Original languageEnglish
    Article number101529
    Number of pages27
    JournalJournal of Corporate Finance
    Volume62
    Early online date31 Oct 2019
    DOIs
    Publication statusPublished - Jun 2020

    Keywords

    • federal funds rate
    • expected financing cost
    • monetary policy uncertainty
    • real options
    • mergers and acquisitions (M&As)
    • acquirer abnormal returns
    • M&A completions

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