Monetary policy and cross-border acquisitions

Abstract

This study investigates the impact of monetary policy on cross-border acquisitions involving US target firms. The results show that US target firms receive significantly lower acquisition premia and cumulative abnormal returns (CARs) when the US Fed and the acquirer country's monetary policies are both restrictive compared to when they are expansive. The cumulative abnormal returns to the target around the merger announcement are roughly 11–13% lower when the Fed is restrictive, relative to when both the acquirer and target countries have expansive monetary policies. Additionally, deals conducted during periods when the monetary policy of the acquirer's country is restrictive are less likely to be financed in cash. The results suggest that monetary policy has a significant impact on target acquisition outcomes and method of financing in cross-border acquisitions.