Abstract
Employing a sample of 492 merger and acquisition (M&A) announcements from 284 acquirers across North America and Europe between 2005 and 2018, this study analyzes the impact of M&A announcements on an acquirers abnormal CDS spread changes. We nd that spreads from CDS which are written on acquirers increase by 310 bps during a symmetric ve-day event window suggesting that investors expect an increase in the acquirers credit risk exposure due to M&As. Next to this baseline nding, we conduct a large variety of sensitivity analyses to gain more insight into the driving factors of the rising risk perception of CDS investors due to M&A announcements.
Highlights
Mergers and acquisitions (M&As) are still significant popular instruments for achieving corporate growth and diversification
We empirically analyze if these announcements may have an impact on the risk perception of investors in credit default swaps (CDSs) that are written on the acquiring firms by using the event study methodology
As related research papers provide mixed results concerning the impact of a complete takeover on the risk perception of investors, we extend the existing literature by analyzing the average abnormal CDS spread changes ((C)AACSCs) during a [-2,2] event window around the announcement day since the majority of previous research papers has primarily focused on bond prices and the distance to default
Summary
Mergers and acquisitions (M&As) are still significant popular instruments for achieving corporate growth and diversification. The number of transactions reached its peak in 2017 with 52,213 worldwide M&A deals, while the volume of M&A deals exhibited its maximum in 2007. Especially the North American market has recovered to pre-crises numbers and volumes. The European market remained fairly stable after the global financial crises in terms of numbers of M&As, but has remarkably decreased in terms of values and is still struggling due to the European sovereign debt crises
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