Economic policy uncertainty and acquisition performance: Australian evidence

Syed Shams, Abeyratna Gunaskerage and Eswaran Velayutham

International Review of Economics & Finance, 2022, vol. 78, issue C, 286-308

Abstract: We investigate the influence of economic policy uncertainty on the market valuation of acquisitions undertaken by Australian firms, finding a negative association between economic policy uncertainty and abnormal returns earned by acquirers. In general, with greater economic policy uncertainty, acquirers pay higher premiums, execute transactions more quickly and are less likely to complete deals. With respect to acquisition choices, acquirers prefer to purchase public targets versus private targets, use stock swaps versus cash in financing deals and are less likely to make cross-border acquisitions. Deals completed at a time of heightened economic policy uncertainty are found to contribute to acquirers’ significant underperformance in the long run. Our main findings are robust after addressing issues related to sample selection bias and selection based on observable firm characteristics. Our findings support the notion that economic policy uncertainty adversely affects acquisition outcomes in Australia.

Keywords: Economic policy uncertainty; Mergers; Acquisitions; Market reactions; Bid premiums (search for similar items in EconPapers)
JEL-codes: G14 G30 G34 J24 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:78:y:2022:i:c:p:286-308

DOI: 10.1016/j.iref.2021.12.004

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