Effects of economic policy uncertainty on M&A deals

: macroeconomic example of the US Market

Abstract

The aim of this thesis is to investigate the relationship between economic policy uncertainty (EPU) and merger and acquisition (M&A) deal characteristics. At first, the relationship between EPU and the likelihood of deal withdrawal among national M&A deals in the US market is studied. Secondly, this thesis intends to investigate the effects of EPU on the deal premium paid for the target company. Thirdly, this thesis aims to study the effects of EPU on the acquiring company’s performance – namely the acquiring company’s cumulative abnormal returns surrounding the deal announcement day. For further perception, three uncertainty indicators – monetary policy uncertainty (MPU), market volatility (VIX) and financial stress (FSI) – are included in the study likewise. The study has found a significant negative effect on the likelihood of a deal withdrawal in times of high economic policy uncertainty. Next to this, high EPU showed to have a positive effect on the acquiring company’s cumulative abnormal returns. No significant effect of EPU on the deal premium paid by the acquiring company was found, however, market volatility and financial stress show significant results to some extent, indicating deal premiums paid in the M&A process are indeed sensitive to market uncertainty but EPU is outperformed as an indicator.

Date of Award	27 Jun 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Geraldo Cerqueiro (Supervisor)