M&A and uncertainty: An empirical study on how volatility affects deals volume and short-term performance

M&A and uncertainty: An empirical study on how volatility affects deals volume and short-term performance

Dicembre 2019
978-88-6105--499-8

Does M&A activity changes during periods of high volatility? The main purpose of this paper is to investigate how turbulent market conditions impact on both M&A volume and value creation around deals announcement.

This paper tracks the volume and examines the short-term performance of a sample of European M&A transactions announced by public listed bidders between 1st January 2013 and 16th July 2018, by discerning between periods of high and neutral uncertainty. The VSTOXX index has been used as a proxy of uncertainty and value creation has been investigated by computing Cumulative Abnormal Returns around the deal announcement. Evidence suggests that, on average, periods of high uncertainty are not only associated with lower M&A activity, but also with lower announcement return. When uncertainty is high, bidding firms earn a statistically significant -0.87% 5-days Cumulative Average Abnormal Returns (CAAR), vis à vis the non-significant +1.39% 5-days CAAR observed in periods of neutral uncertainty. A multi-variable regression model is then ran to determine whether uncertainty can be considered as one of the key drivers of short-term M&A performance, with result showing that a negative and statistically significant relationship between 5-days CARs and uncertainty exists.