The Effects of the Aggregate Stock Market on Mergers and Acquisitions

52 Pages Posted: 12 Feb 2020

See all articles by Vyacheslav Fos

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Jun Yang

University of Notre Dame

Date Written: January 17, 2020

Abstract

We exploit changes in the aggregate stock market conditions as an exogenous shock to an individual M&A deal to explore the economic motivations behind these deals. Equity deals exposed to negative stock market returns after deal announcements are less likely to be completed and deliver lower abnormal returns for both acquirers and targets, especially when acquirers' market betas are high. In contrast, cash deals are not affected by the negative post-announcement market conditions. Further analyses indicate that synergies, rather than mispricing, are the leading motive behind deals affected by changes in stock market conditions.

Keywords: Mergers, Acquisitions, Stock Market Index Return, Synergies

JEL Classification: G34, G10

Suggested Citation

Fos, Vyacheslav and Yang, Jun, The Effects of the Aggregate Stock Market on Mergers and Acquisitions (January 17, 2020). Available at SSRN: https://ssrn.com/abstract=3521484 or http://dx.doi.org/10.2139/ssrn.3521484

Vyacheslav Fos (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jun Yang

University of Notre Dame ( email )

Notre Dame, IN
United States

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