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 language | English |
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Article number | 101529 |
Number of pages | 27 |
Journal | Journal of Corporate Finance |
Volume | 62 |
Early online date | 31 Oct 2019 |
DOIs | |
Publication status | Published - 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