The Effects of the Aggregate Stock Market on Mergers and Acquisitions
52 Pages Posted: 12 Feb 2020
Date Written: January 17, 2020
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: Suggested Citation