The impact of monetary policy on M&A outcomes

Samer Adra, Leonidas G. Barbopoulos and Anthony Saunders

Journal of Corporate Finance, 2020, vol. 62, issue C

Abstract: Monetary policy influences a wide range of Mergers and Acquisitions (M&A) outcomes. First, an increase in the federal funds rate predicts a negative market reaction to M&A announcements, an increase in the likelihood of deal withdrawal, and significant financing challenges for the acquirer in the post-acquisition phase. Second, M&As announced during periods of high monetary policy uncertainty are associated with significant declines in acquirer value. This negative market reaction reflects a unique discount to compensate for the high riskiness of M&As in an uncertain monetary environment. Finally, we show that monetary contraction, rather than monetary policy uncertainty, is a key contributor to the decline in the aggregare M&A activity.

Keywords: Federal funds rate; Expected financing cost; Monetary policy uncertainty; Real options; Mergers and Acquisitions (M&As); Acquirer abnormal returns; M&A completions (search for similar items in EconPapers)
JEL-codes: E52 G12 G34 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:62:y:2020:i:c:s0929119919301166

DOI: 10.1016/j.jcorpfin.2019.101529

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