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The Perverse Valuation Effect on Mergers and Acquisitions in Europe

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

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.

Suggested Citation

  • Röhrer, Fabio E.G. & Mateane, Lebogang & Proaño, Christian R., 2025. "The Perverse Valuation Effect on Mergers and Acquisitions in Europe," Economic Modelling, Elsevier, vol. 142(C).
  • Handle: RePEc:eee:ecmode:v:142:y:2025:i:c:s0264999324002852
    DOI: 10.1016/j.econmod.2024.106928
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    More about this item

    Keywords

    Mergers and Acquisitions; Macroeconomy and Financial Markets; Long-term government bond yields; European Union;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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