The Relationship between Announcements of Complete Mergers and Acquisitions and Acquirers’ Abnormal CDS Spread Changes

Abstract

Employing a sample of 492 merger and acquisition (M&A) announcements from 284 acquirers across North America and Europe between 2005 and 2018, this study analyzes the impact of M&A announcements on an acquirers abnormal CDS spread changes. We find that spreads from CDS which are written on acquirers increase by 310 bps during a symmetric five-day event window suggesting that investors expect an increase in the acquirers credit risk exposure due to M&As. Next to this baseline finding, we conduct a large variety of sensitivity analyses to gain more insight into the driving factors of the rising risk perception of CDS investors due to M&A announcements.

Keywords: credit default swaps, risk perception of CDS investors, mergers and acquisitions, event study

JEL Classification: G14, G34