The Relationship between Announcements of Complete Mergers and Acquisitions and Acquirers’ Abnormal CDS Spread Changes
Posted: 1 Oct 2019
Date Written: August 25, 2019
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
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