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Financial market risk perceptions and mergers and acquisitions

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  • Li, Zhengzhuo (Zyaire)

Abstract

I study the impact of financial market risk perceptions on firms’ mergers and acquisitions (M&A) decisions. Utilizing the Price of Volatile Stocks (PVS) as a market-based risk perception measure, I find a significant decrease in the propensity of firms to initiate M&A when risk perceptions are high. Further analysis supports the cost of capital channel: the negative effect of risk perceptions on M&A activity is especially pronounced among financially constrained firms. During high-risk periods, firms are also more likely to acquire targets in unrelated industries, likely to capture financial synergies that help mitigate capital costs. Additional analysis shows that firms operating in less competitive industries are also more susceptible to changes in market risk perceptions. I also find that acquisitions undertaken during high-risk periods tend to be of higher quality, generating superior value for shareholders, and that risk perceptions also affect cross-border M&A activity.

Suggested Citation

  • Li, Zhengzhuo (Zyaire), 2026. "Financial market risk perceptions and mergers and acquisitions," Journal of Banking & Finance, Elsevier, vol. 188(C).
    • Handle: RePEc:eee:jbfina:v:188:y:2026:i:c:s0378426626000877
    DOI: 10.1016/j.jbankfin.2026.107713
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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