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The impact of monetary policy on M&A outcomes

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  • Adra, Samer
  • Barbopoulos, Leonidas G.
  • Saunders, Anthony

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.

Suggested Citation

  • Adra, Samer & Barbopoulos, Leonidas G. & Saunders, Anthony, 2020. "The impact of monetary policy on M&A outcomes," Journal of Corporate Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:corfin:v:62:y:2020:i:c:s0929119919301166
    DOI: 10.1016/j.jcorpfin.2019.101529
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    More about this item

    Keywords

    Federal funds rate; Expected financing cost; Monetary policy uncertainty; Real options; Mergers and Acquisitions (M&As); Acquirer abnormal returns; M&A completions;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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