The Impact of Monetary Policy on M&A Outcomes

Posted: 16 Mar 2021

See all articles by Samer Adra

Samer Adra

University of Birmingham

Leonidas G. Barbopoulos

University of Edinburgh

Anthony Saunders

New York University - Leonard N. Stern School of Business

Date Written: 2020

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 aggregate M&A activity.

Keywords: Federal funds rate, Expected financing cost, Monetary policy uncertainty, Real options, Mergers and Acquisitions (M&As), Acquirer abnormal returns, M&A completions

JEL Classification: G12, G34, E52

Suggested Citation

Adra, Samer and Barbopoulos, Leonidas G. and Saunders, Anthony, The Impact of Monetary Policy on M&A Outcomes (2020). Journal of Corporate Finance, Vol. 62, 2020, NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3796894

Samer Adra

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Leonidas G. Barbopoulos (Contact Author)

University of Edinburgh ( email )

University of Edinburgh Business School
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

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