Does the Financial Sector Drive Non-Financial Sector M&A Activity?

Abstract

In this paper we investigate global merger dynamics by examining the causal relationships between merger activity occurring in different industries and different economic frameworks. We test for casual relationship to examine M&A activity using an extensive dataset covering over 400,000 global international M&A transactions announced and completed between 1979 and 2002. The results show that M&A activity in the global non-financial sector initiates M&A activity in the financial sector. EU and US level results indicate that the financial sectors of both economic frameworks do not Granger cause their own non financial sector M&A activity. However, the international spill-over effect suggests that financial institutions in the these countries provide M&A funding to non-financial companies in each other.

Keywords: M&A, Granger Causality

JEL Classification: G34, G24