The Effects of the Aggregate Stock Market on Mergers and Acquisitions

We exploit changes in the aggregate stock market conditions as an exogenous shock to an individual M&A deal to explore the economic motivations behind these deals. Equity deals exposed to negative stock market returns after deal announcements are less likely to be completed and deliver lower abnormal returns for both acquirers and targets, especially when acquirers' market betas are high. In contrast, cash deals are not affected by the negative post-announcement market conditions. Further analyses indicate that synergies, rather than mispricing, are the leading motive behind deals affected by changes in stock market conditions