The Effect of Economic and Policy Uncertainty on Acquirers' M&A Performance by Method of Payment: Evidence from Norway
Abstract
This event study examines how economic and policy uncertainty affects acquirer
firms’ cumulative abnormal returns during an M&A announcement, with respect
to payment methods. Using a sample of 700 announcements in Norway from
1996-2022, our evidence indicates significant importance in dividing the payment
methods. Acquiring firms tend to use stock for risk mitigation, but we find that
investors react adversely to the acquirer’s CAR due to its negative signalling.
Further, the market reacts negative to cash when the economy is in a recession,
whereas stock is negative when the economy is growing. Payments are usually
financed with debt or equity issuance, inducing different implications when
both the interest and inflation rate rise. These influence investors’ view on
the acquirer and prospective synergies from the M&A transaction, as it can
adversely affect its financial strength and valuations. Overall, our findings
show strong results, and they are aligned with earlier evidence and established
theories.
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2023