Cross-Border M&A Flows, Economic Growth, and Foreign Exchange Rates

96 Pages Posted: 17 Feb 2022 Last revised: 1 Jun 2023

See all articles by Steven Riddiough

Steven Riddiough

University of Toronto

Huizhong Zhang

Queensland University of Technology - School of Economics and Finance

Date Written: June 1, 2023

Abstract

We extract information about future economic conditions from firms' cross-border merger and acquisition announcements, and show it predicts changes in relative economic growth rates and foreign exchange rate returns. We find the predictability is driven by the acquisition decisions of domestic firms, which signal turning points in local economic growth. The findings are motivated via a simple model of exchange rate determination with heterogeneous expectations and support the theorized relationship between foreign exchange rates and macroeconomic fundamentals. The results provide new tools for policy makers seeking to predict economic activity and offer global investors a novel source of portfolio diversification.

Keywords: exchange rate determination, foreign exchange return predictability, cross-border mergers and acquisitions, corporate expectations, economic growth

JEL Classification: F31, E22, E32, G12, G15, G34

Suggested Citation

Riddiough, Steven and Zhang, Huizhong, Cross-Border M&A Flows, Economic Growth, and Foreign Exchange Rates (June 1, 2023). Available at SSRN: https://ssrn.com/abstract=4020392 or http://dx.doi.org/10.2139/ssrn.4020392

Steven Riddiough (Contact Author)

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Huizhong Zhang

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

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