← Search

The Real Effects of Uncertainty on Merger Activity

Vineet Bhagwat¹; Robert Dam²; Jarrad Harford³

¹ University of Oregon · ² University of Colorado System · ³ University of Washington

Firm values can substantially change between the time deal terms are set and the actual deal closing, risking renegotiation, or termination. We find increases in market volatility decrease subsequent deal activity, but only for public targets subject to an interim period. The effect is strongest when volatility is highest, for deals taking longer to close, and for larger targets. Merging parties attempt to shorten the interim window as risk increases. Firm- and industry-level uncertainty measures reveal similar findings, ruling out an unobserved macro variable. We conclude interim uncertainty contributes to understanding the timing and intensity of public firms’ merger activity. Received February 12, 2015; accepted May 23, 2016 by Editor David Denis.

DOI

10.1093/rfs/hhw061

Volume

29 (11)

Pages

3000-3034

Language

en

Export

BibTeX

Sources

openalex crossref