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.