The Perverse Valuation Effect on Mergers and Acquisitions in Europe

Fabio E.G. Röhrer, Lebogang Mateane and Christian R. Proaño

Economic Modelling, 2025, vol. 142, issue C

Abstract: We investigate the macroeconomic and financial determinants of mergers and acquisitions (M&A) in Europe and address the gap in understanding how financial market dynamics influence corporate decisions. While previous literature has examined macroeconomic factors affecting M&A, the impact of (10-year government) bond yields remains underexplored. We fill this gap using panel data of 21 European Union Countries over 2006:Q1–2022:Q2. Across different model specifications we find that bond yields and real gross domestic product growth are robust determinants of M&A, even after controlling for other determinants. A novelty of our study is that rising and higher bond yields are associated with a reduction in M&A activity because investors are shifting their portfolios out of bonds and into riskier assets like equities, thereby increasing acquisition costs. We denote this as a “perverse valuation effect” offering new insights into M&A dynamics.

Keywords: Mergers and Acquisitions; Macroeconomy and Financial Markets; Long-term government bond yields; European Union (search for similar items in EconPapers)
JEL-codes: E00 E02 G15 G34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:142:y:2025:i:c:s0264999324002852

DOI: 10.1016/j.econmod.2024.106928

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