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Does Monetary Policy Affect Mergers and Acquisitions?

Carl-Wolfram Horn and Johannes J. Fischer

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

Abstract: We analyse the effects of monetary policy on mergers and acquisitions (M&A) activity in the United States, both on the aggregate and the firm level. We find that aggregate M&A activity decreases significantly following a monetary policy shock. The aggregate results are confirmed by an analysis of the firm-level M&A activity from the perspective of the acquiring firm. We find that the likelihood of becoming an acquiror decreases significantly following a contractionary monetary policy shock. We find that the acquisition likelihood falls significantly more for relatively more financially constrained firms, suggesting a strong role for the credit channel in the transmission of monetary policy to firms' M&A decisions. We rationalize our empirical findings in a stylized partial-equilibrium model of the firm's M&A decision

Keywords: Monetary Policy; Corporate Finance; Mergers and Acquisitions (search for similar items in EconPapers)
JEL-codes: E44 E52 G34 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-com, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc21:242445

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