Working Paper: NBER ID: w31235
Authors: Katharina Bergant; Prachi Mishra; Raghuram Rajan
Abstract: We find that financial conditions in the core have significant spillover effects on cross-border mergers and acquisitions (M&As). On average, a 1 percentage point easing of the IMF US Financial Conditions Index is associated with approximately a 10% higher volume of cross-border M&As. The spillovers are stronger for countries with more liabilities denominated in foreign currency (or in US dollars). We find that the spillovers are driven by changes in US financial conditions, rather than changes in Euro Area conditions. Deals that happen when financial conditions in the US are tighter (and therefore acquisitions fewer) add more value for the acquirers, as reflected in higher acquirer excess stock returns around the announcement.
Keywords: Cross-border Mergers and Acquisitions; US Financial Conditions; Spillover Effects
JEL Codes: G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. financial conditions index (G28) | cross-border M&A volume (F23) |
| U.S. financial conditions index (G28) | acquisition activity (G34) |
| tighter U.S. financial conditions (F65) | excess stock returns for acquirers (G34) |
| easier domestic financing conditions (G21) | acquisition activity (G34) |
| easier domestic financing conditions (G21) | likelihood of value-reducing acquisitions (G34) |
| foreign currency liabilities (F31) | spillovers from U.S. financial conditions (F65) |