The Real Effects of Uncertainty on Merger Activity

Vineet Bhagwat, Robert Dam and Jarrad Harford ()

The Review of Financial Studies, 2016, vol. 29, issue 11, 3000-3034

Abstract: Firm values can substantially change between the time deal terms are set and the actual deal closing, risking renegotiation, or termination. We find increases in market volatility decrease subsequent deal activity, but only for public targets subject to an interim period. The effect is strongest when volatility is highest, for deals taking longer to close, and for larger targets. Merging parties attempt to shorten the interim window as risk increases. Firm- and industry-level uncertainty measures reveal similar findings, ruling out an unobserved macro variable. We conclude interim uncertainty contributes to understanding the timing and intensity of public firms’ merger activity.Received February 12, 2015; accepted May 23, 2016 by Editor David Denis.

JEL-codes: E32 G31 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (45)

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