Market Crashes and Merger Completions

53 Pages Posted: 24 Feb 2020

See all articles by Davidson Heath

Davidson Heath

University of Utah David Eccles School of Business

Mark L. Mitchell

AQR Capital Management, LLC; CNH Partners

Date Written: January 27, 2020

Abstract

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

Heath, Davidson and Mitchell, Mark L., Market Crashes and Merger Completions (January 27, 2020). Available at SSRN: https://ssrn.com/abstract=3526931

Davidson Heath (Contact Author)

University of Utah David Eccles School of Business ( email )

Salt Lake City, UT 84112
United States

Mark L. Mitchell

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

CNH Partners ( email )

One Greenwich Plaza
2nd Floor
Greenwich, CT 06830
United States
(203) 742-3001 (Phone)

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