Market Timing and Religious Sentiment in Mergers and Acquisitions – International Evidence

Abstract

We investigate the effect of market timing and religious sentiment motivations on mergers and acquisitions (M&A). Our identification strategy relies on comparing deals made during a period of high religious sentiment and in countries with differing institutional characteristics to disentangle the effects of market timing and religious sentiment. We find that consistent with the market timing hypothesis, on average during Ramadan, aggregate M&A activity is higher, managers are less likely to listen to the market and post-acquisition performance is lower. Further analyses show the results are driven by Malaysia, and, consistent with market timing, stock acquisitions are more probable in Malaysia during Ramadan. However, Turkey and to some extent Saudi Arabia show evidence for religious sentiment leading to higher quality deals during Ramadan.

Keywords: Mergers and Acquisitions; Finance and Religion; Behavioral Finance; Islamic Finance

JEL Classification: G34, G41