Market Crashes and Merger Completions
53 Pages Posted: 24 Feb 2020
Date Written: January 27, 2020
A primary concern in mergers and acquisitions is the risk that the deal may be cancelled before completion. We document that this "interim risk" varies asymmetrically with the aggregate stock market: When the market falls sharply, cash deals are more than twice as likely to be cancelled. For stock deals and for cash deals with a definitive agreement in place there is no effect, consistent with costly renegotiation as a mechanism. Interim risk also alters the terms of merger deals that are announced and completed.
Keywords: mergers, acquisitions, completion, cancellation, market crashes, real effects, strategic default, method of payment, interim risk, definitive agreement
JEL Classification: G34, G30, K22
Suggested Citation: Suggested Citation