The Impact of Macroeconomic Activity and Yield Valuation on Mergers and Acquisitions in Europe

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We examine the macroeconomic determinants of mergers and acquisitions (M& A) using panel data over 2006: Q1 - 2022: Q2 for 21 European Union (EU) countries. Across di§erent model speciÖcations we Önd that bond yields and past real GDP growth are robust quantitatively and statistically significant determinants of M& A even after controlling for ináation and short-term global financial uncertainty. Additionally, we investigate the effect of the earnings before interest, taxes, depreciation and amortization multiple as an additional explanatory variable. A crucial novelty of our study is that bond yields reduce M& A activity because other investors are shifting their portfolios out of bonds and into riskier assets such as equities. We denote this as a ìperverse valuation effectîmaking M& A more expensive. This interpretation and channel is unique to our study