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The impact of macroeconomic activity and yield valuation on mergers and acquisitions in Europe

Author

Listed:
  • Röhrer, Fabio E.G.
  • Proano, Christian R.
  • Mateane, Lebogang

Abstract

We examine the macroeconomic determinants of mergers and acquisitions (M&A) using panel data over 2006:Q1 - 2022:Q2 for 21 European Union (EU) countries. Across di§erent model specifications we find that bond yields and past real GDP growth are robust quantitatively and statistically significant determinants of M&A even after controlling for inflation and short-term global financial uncertainty. Additionally, we investigate the effect of the earnings before interest, taxes, depreciation and amortization multiple as an additional explanatory variable. A crucial novelty of our study is that bond yields reduce M&A activity because other investors are shifting their portfolios out of bonds and into riskier assets such as equities. We denote this as a "perverse valuation effect" making M&A more expensive. This interpretation and channel is unique to our study.

Suggested Citation

  • Röhrer, Fabio E.G. & Proano, Christian R. & Mateane, Lebogang, 2023. "The impact of macroeconomic activity and yield valuation on mergers and acquisitions in Europe," BERG Working Paper Series 185, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:185
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    More about this item

    Keywords

    Mergers and Acquisitions; Financial markets; Macroeconomy; European Union;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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