M&A Deals During A Financial Crisis

M&A Deals during a Financial Crisis
Andries de Boer
June 2012
Under supervision of:

Dr. P. Verwijmeren
ABSTRACT
In this paper, the impact of a financial crisis on merger and acquisition (M&A) deals has
been studied for the period 2000-2010. Several variables were tested to see what the
impact of the financial crisis, better known as the credit crunch, was. Evidence was found
that a crisis has a negative effect on M&A deals. Furthermore, motives behind M&A
deals do change during a financial crisis, companies are more focused on surviving.
M&A deals are financed differently during a financial crisis, as more transactions are
paid with cash. Lastly evidence was found that takeover premiums are positively related
to a financial crisis. These results are consistent with the existing M&A literature.
However, no significant relation was found between a financial crisis and the number of
successful M&A deals. Although a relation was expected, this study did not find
evidence for it.
Keywords: Mergers and acquisitions, financial crisis, payment method, abnormal

returns, takeover premiums.
Andries de Boer | Student number: 1739441 | E-mail: abr214@student.vu.nl | Master Thesis

Faculty of Economics and Business Administration | VU University Amsterdam
Master Thesis – M&A deals during the Financial Crisis June, 2012
PREFACE
In front of you lies my master thesis, written at the VU University in Amsterdam. I have chosen to write
my master thesis about the impact of a financial crisis on mergers and acquisitions (M&A). The financial
crisis is an topic which still interests me, and after I wrote my bachelor thesis about the collapse of the
Lehman Brothers in combination with the credit crunch, I now focused on mergers and acquisitions. This
topic seemed very interesting and challenging to me. Especially, because not a whole lot is written about
M&A deals during a financial crisis.
During my master Business Administration, with the specialization Financial Management, I have learned
many things and have grown personally. Extra-curricular activities such as the Amsterdam Research
Project 2011 and the Graduates Business Trip 2012 have made me the person I am today. With finishing
my master thesis, also the last project at the VU University, I am eager and excited to start my career in
the business world.
During the process of writing, there were some people who helped me to complete this project. First of
all, I want to thank my supervisor Patrick Verwijmeren for giving advice and helpful comments during
my research process. Without his help it would be a lot more difficult to complete this master thesis.
Furthermore, I want to thank my family and friends for their love and support, which helped me in
finishing this master.
Andries de Boer
Amstelveen, June 2012
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TABLE OF CONTENTS
1. Introduction .............................................................................................................................. 4
2. Research questions.................................................................................................................... 6
3. Relevant literature..................................................................................................................... 8
3.1 Determinants of M&A activity ........................................................................................... 8
3.2 Motives behind M&A deals.............................................................................................. 10
3.3 Financing M&A deals....................................................................................................... 12
3.4 Determinants of M&A success ......................................................................................... 14
3.5 Changing takeover premiums ........................................................................................... 16
4. Empirical research .................................................................................................................. 18

4.1 Data................................................................................................................................... 18
4.2 Hypothesis ........................................................................................................................ 21
4.3 Methodology ..................................................................................................................... 23
5. Results .................................................................................................................................... 24
5.1 Results of the empirical research ...................................................................................... 24
5.2 Reflection on the results ................................................................................................... 35
6. Conclusion .............................................................................................................................. 38
References ...................................................................................................................................... 40
Appendices..................................................................................................................................... 44
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1. INTRODUCTION
Mergers and acquisitions (M&A) is a way of doing business that has become fairly common in the
business world. It is a way to divide, combine or simply takeover other companies or branches within a
company. The motives behind M&A deals can vary widely, but the dominant reason explaining M&A
deals is the search for improved financial performance. Firms can improve their financial performance
through for example economies of scale or making use of reducing the tax liability. In the past there were
different so called merger waves, for example between 1895 and 1905 there was ‘The Great Merger
Movement’, which was the first merging wave (see for example Lipton, 2006). During this time several
small firms merged with similar firms to form large powerful firms with a large market share. From then
on, there were five more merger waves, but each with different characteristics. The first wave was known
by its horizontal mergers, the last merger on the other hand was known for its shareholder activism,
private equity and LBO’s.
However M&A deals may behave differently in times of a financial crisis. In a financial crisis
firms can be in trouble, short on cash and may not be able to pay their debts. What can result in forced
M&A deals as an option of last resort. This study will examine the impact of a financial crisis on M&A
deals. Whether the motives behind M&A deals change during a financial crisis, or that they are financed
differently. But also whether the takeover premiums change during a financial crisis and if there is any
evidence of successful M&A deals during a financial crisis. In order to test these questions this study will
focus on the financial crisis, better known as the credit crunch, which took place between 2007 and 2009.
Furthermore, it focusses on M&A deals within the United States ranging from January 2000 until
December 2010, where both the acquirer and the target are from US origins. Complex interplay of
valuation and liquidity problems which originated from the United States triggered the credit crunch
(Simkovic, 2009). This is why focusing on this country is so interesting. With variables and data collected
from different databases such as; SDC Platinum, Zephyr and the Center for Research in Security Prices,
statistical analyses are performed.
Like most earlier literature, findings show that a financial crisis has a significant negative effect
on the number of M&A deals closed, fear and insecurity explain this kind of behavior (Duett et al., 2010).
Furthermore, motives behind M&A deals do change during a financial crisis. While normally a company
will proceed in M&A deals in order to grow, this changes to strengthening and maintaining their firm
through M&A activity (Mitchell and Mulherin, 1996). Besides these changing motives, the way M&A
deals are financed also changes. Undervaluation of shares during a financial crisis makes managers decide
to pay M&A deals with cash (Masson, 2010). Although it was expected, no significant relation could be
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found between a financial crisis and the number of successful M&A deals. Lastly takeover premiums do
seem to change and will get higher in time of a financial crisis. Imperfections in the capital market, with
undervaluation in recessions are the primary explanation (Nathan and O’Keefe, 1989).
During the financial crisis a lot of industries and sectors have been hit by the financial turmoil
(see also Shah, 2010). In this case, M&A deals may be a solution for governments and shareholders. This
research could help to understand what happens with M&A during a financial crisis and with this
information firms can make better decisions concerning M&A deals. Furthermore, at the time this
research is written, the empirical research about this topic is still scarce. This is why the results from the
different datasets with their explaining variables could contribute to the existing academic literature.
In section 2 the main research question and the sub research questions are stated, while in section 3 a
review of the relevant literature concerning the research questions is given. Section 4 provides an
overview of the data used, the hypothesis are stated and the employed methodology is described. After
reviewing the methodologies, the results of the empirical research are presented and interpret in section 5.
Lastly section 6 contains the summary and conclusions of this study.
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2. RESEARCH QUESTIONS
The goal of this master thesis is to gain insight into how the financial crisis has an impact on M&A deals.
With this insight, M&A behavior during a financial crisis is better understood in the future. This could
help firms in making better decisions. In this study I will try to give an answer to the main research
question, which is stated below.
Main research question

When summarizing the objective of this master thesis, the following main research question is
formulated:
What is the impact of a financial crisis on M&A deals?
In order to give an answer to the main research question, five sub research questions are formulated. Each
of the following research questions are tried to be answered by previous literature and by testing data,
collected from several databases, through OLS regressions. The sub research questions that are drawn up
with this main research question are stated below, under each question some additional information is
given.
1. Is the number of M&A deals reduced during a financial crisis?

This question, once it is answered, gives a general view of what the impact of a financial crisis on M&A
deals is. In the literature section, research for previous evidence or results concerning this topic will
performed. It is expected that the number of M&A deals are reduced during a financial crisis.
2. What is the main motive for M&A during crises?

Would motives behind M&A deals change during a financial crisis? This sub research question could
give a clearer view why companies are involved in M&A transactions. Furthermore, it could help in
showing how much impact a financial crisis has on M&A deals.
3. Are M&A deals financed differently during a financial crisis?

During a financial crisis the way of financing an M&A deal could also change. This study will try to give
an answer to this question. Discussing topics like; how M&A deals are paid in general and what the effect
are from the different financing ways.
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4. Are M&A deals closed during a financial crisis successful?

In times of a financial crisis it is harder for companies to perform and be successful. However M&A deals
are also closed in times of a financial crisis. Could M&A deals closed during a financial crisis be
successful? It is expected that a financial crisis would have a negative influence on the number of
successful M&A deals closed during a financial crisis.
5. Do takeover premiums change during a financial crisis?

Takeover premiums show how much companies are willing to invest in a company and how companies
are valued. The question whether these premiums will change during a financial crisis will be answered
together with literature and regressions with data collected. A financial crisis will have its consequences,
would the takeover premiums also change?
In the next section the relevant literature concerning the research questions is stated. In the literature
review the topic will be explored in greater depth. This is done by using several journals and their
previous found results.
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3. RELEVANT LITERATURE
In the last section the main research question and its sub research questions were stated. Furthermore, a
short introduction to the subject has been given. In this section the subject will be looked in more
intensively, as relevant literature is discussed in this section. The literature is divided according to the five
sub research questions stated in the previous section.
3.1 Determinants of M&A activity

There are various determinants of M&A activity. For example Waschiczek (2008) argues that the
financial crisis of 2007 resulted in tightening of the credit standards for loans concerning mergers and
acquisitions. Banks were less willing to lend large sums of money over a longer time period, which
affected the M&A transactions. These credit standards were adjusted because of the uncertainty that
existed as a result of the financial crisis. Waschiczek also argues that the M&A market expanded rapidly
from 2005 to 2007. M&A transactions had a significant factor in driving the loan demand, for example
see figure 1. However since the beginning of the crisis, this contribution in demand of loans for M&A
activity dwindled, which also implies that M&A activity dropped during the crisis.
Figure 1: Mergers & Acquisitions and Loans to Enterprises
M&A activity could also differ per country. Rossi and Volping (2004) have researched that there are
more M&A transactions in a country when it has better accounting standards and stronger shareholder
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protection. Furthermore, hostile deals are more likely in countries with better shareholder protection,
private benefits of control are then reduced and minority shareholders have good protection, which makes
control more contestable. Countries with investor friendly legal environments have more active markets
for M&A. Nenova (2003) explains that with low shareholder protection there will be large private
benefits of control, which results in a market for corporate control which does not operate freely.
However countries with high investor protection, have low private benefits of control, which results in an
active market for corporate control. Whenever a country has good accounting standards the disclosure of
information increases, making it easier for companies to identify potential targets.
Jensen (1986) argues that when companies have cash reserves they are more likely to spend it on M&A
activity. Harford (1999) finds a similar conclusion and argues that cash-rich firms are more likely to
acquire other companies. Companies with cash reserves have cash which they are not using at that
moment, so they could decide what they will do with it. Acquiring another company could be a good
investment. However Luypaert and Huyghebaert (2007) find that there is no significant relationship
between on the one hand cash reserves and on the other hand the increase of M&A deals.
Andrade and Stafford (2004) found that when industries are already highly concentrated, the M&A
activity in such an industry is going down. An explanation for this is less room for further consolidation,
ensured by closely examination by the antitrust authorities. Another explanation is also given by Weston
et al (2001); they argue that when an industry is highly concentrated firms are more likely to recognize
the impact of their own actions. This can result in changes in competitive behavior and in this case,
horizontal mergers and acquisitions can help companies in highly concentrated industries to realize
returns, suggesting a positive relation between industry concentration and M&A activity. Thus, according
to the theory above, the relation between the concentration of an industry and the M&A activity could be
negative, as well as positive.
Mulherin and Boone (2000) explain that the deregulation of an industry also has an effect on the M&A
activity. Deregulation removes any constraints on the size of companies in a certain industry, but it also
induces the entry of new enterprises. Companies need to restructure or engage in M&A in order to keep
up with the changes. Furthermore, Luypaert and Huyghebaert find a connection between GDP growth and
M&A activity. Explaining that companies could seek fast increases in operating capacity when an
economy (and thus the GDP) is growing. However when there are, for example bad business conditions,
such firm enhancements through M&A could be tempered.
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Kamaly (2007) finds another determinant of M&A changes. He argues that positive changes in the S&P
500 index, positively affects M&A deals. This means that when the S&P index or the economy is doing
well, more M&A deals are closed, indicating that more M&A deals take place in the developed countries.
Furthermore, his paper states that a study of Di Giovanni (2005), finds a positive relation between the
openness of the economy and the number of M&A deals closed. To measure the openness of the
economy, the ratio of the sum of imports and exports to GDP is used. Auerbach (1988) concluded that the
tax environment also has an influence on the number of M&A deals closed. Changes in tax regimes could
have a significant influence on the M&A deals performed over a short to medium period. For example,
these changes could make M&A deals more or less costly to conduct. Trying to capture the effects of
such tax regime changes, Auerbach used dummy variables in his research.
According to Duett et al. (2010) different recessions since 1980 have led to large declines in the number
of M&A in the U.S. as well as globally. This drop can be explained by lower value of completed deals,
financing difficulties and a general fear and insecurity about the economic future. The financial crisis of
2008 and the collapse of different companies resulted in a large decline in M&A deals. Companies were
changing their strategy. Instead of focusing on growth and acquisition, they focused on survival and
profitability. Although the M&A market is slowly improving again after the crisis of 2008, the M&A
deals announced in September 2009 were still approximately 37 percent down comparing to this period in
2008 and 56 percent down comparing to this period in 2007.
3.2 Motives behind M&A deals

The paper from Duett et al. (2010) researched the motives explaining M&A deals. They state that there
are different motives, largely divided between financial motives and non-financial motives or a
combination of both. Non-financial motives would include improving marketing opportunities, market
expansion, development and using managerial capacity.
Financial motives for M&A transactions could be for example, the advantage of having economies of
scale and scope. When two companies merge and form one company, this bigger firm can more easily
spread their fixed costs over a broader output base, which would result in lower average costs per unit.
This is making use of the economy of scale. However, sometimes companies are already too big to use
economies of scale, but still continue in M&A transactions. In this case size could be an important
advantage according to Cummins and Xie (2007). On the other hand, using economies of scope reduces
the average costs for two or more units, for example by sharing the resources such as IT or brands.
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Another financial motive for an M&A transaction could be replacing inefficient managers in the target
company. In this way the agency costs could go down, and by hiring new and better managers the
performance of the company could improve due to this M&A transaction. A company could also takeover
another company because it is looking for certain competencies or skills that can increase market share or
improve cost efficiency.
There are also opportunities for creating synergies, for example when a company has good investment
possibilities, but has inadequate financial resources. In this way a company with adequate financial
resources could merge or takeover this company, after which it could exploit these investment
possibilities.
Besides these motives discussed above, Mitchell and Mulherin (1996) argue that M&A transactions also
take place as a reaction to an economic shock. The industry shock theory explains that merger and
acquisition behavior is partially explained by changes or shocks in the industry or economy, even though
there is not necessarily improved performance after such an M&A transaction. In this case a company is
trying to strengthen or maintain their firm through M&A activity. The financial crisis of 2008 is an
example of such a change in M&A activity due to a financial shock.
The motives described are all, except for the industry shock theory, based on creating synergies for both
the acquirer as target shareholders. In this way an M&A transaction can create synergy for both the
companies. However, about half of the acquisitions have negative returns for the acquiring stockholders
(Asquith’s, 1983). While the synergy motive implies that takeovers only occur when there is a possible
gain for the acquirer shareholders, there must also be other factors behind an acquisition. Berkovitch and
Narayanan (1993) argue that a so called agency motive and a hubris hypothesis exist.
Sometimes takeovers are motivated by the self-interest of the management. There are different ways to
accomplish this; among them are the diversifications of the management’s personal portfolio. Using free
cash flow to increase the company size and acquire assets that increase independence on the management
is a way to diversify their portfolio. Managements are trying to make extra profits for themselves or are
trying to secure their position in a company, which is called management entrenchment. However these
actions result in higher agency costs, which will result in lower acquisition gains for the acquirer
shareholders. In this agency problem, managements are even paying higher takeover premiums to target
shareholders, to comply with the demands of target shareholders and to satisfy their own welfare.
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The other possibility explaining the negative returns for acquiring stockholders after acquisitions is the
hubris hypothesis. The hubris hypothesis states that during acquisitions mistakes are made by
management and that there are no synergy gains. In this case managers are overestimating the synergies
while looking at a target company. The takeover premium is higher due to this overestimation, which will
be deducted from the real synergy and results in reduced total gains. These mistakes are called managerial
mistakes.
Vos and Kelleher (2001) give yet another reason why managers still enter in M&A activity, even while
half of them give negative returns. They conclude that several power-based theories, some already
described above, are explaining these agency costs. One of them is the monopoly theory, this theory states
that managers enter in M&A activity, because they want to increase their market power, through M&A
they could get bigger, and size is power.
3.3 Financing M&A deals

Masson (2010) argues that there are different ways to finance M&A deals, but divided in two categories,
financing it by cash or by shares. For the shareholders from the selling company it is an investment
decision. Should they choose shares and try to benefit from potential synergies or future value? Or is it
better to choose cash, and reinvest this in other assets? This decision depends on the portfolio strategy of
this shareholder, its risk and return objectives or for example tax concerns. For the shareholders from the
buying company however it is more a financing issue. The choice between cash or shares is influenced by
four factors which are described below. Whether the M&A deal is paid with cash or shares, it could be a
way to signal value to the other party. Financing M&A deals with shares could be a possibility that the
shares are overvalued, while financing with cash could mean that the shares are undervalued.
When managers want to get involved in M&A, they need to think how they can finance a deal, and
besides this how to keep the financing structure optimized. The first factor that influences the financing
choice is the pecking order theory, which states that managers tend to prefer internal financing versus
external financing, thus they will use cash first, then stock or debt and finally equity. The second factor, is
the value of the company. Does the company already uses its debt tax shields to the fullest, or is it still
beneficial regarding tax deductions, to make loans. For example, the fact that the bankruptcy or distress
costs are not too high compared to the benefits of using debt. The third factor is looking at the momentum
of the deal, making this choice depends on good and bad moments. And lastly the fourth factor is the
asset base of the firm, whether the current lenders will allow the company to increase or reduce their debt.
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Besides the influencing factors described above, managers also should think of the maturity of a loan
while involved in M&A deals. If there is mismanaged, this could also lead to problems later on. For
example, if the maturity of the loan is shorter than the maturity of the acquired company, the acquiring
company faces a refinancing risk when it is not capable to refinance it at favorable terms.
Stulz (1988) analyzed that other factors also play a role in making the financing decision. He argues that
these decisions are affected by managers and their desire to maintain in control and pursuing their own
benefits. Managers have incentives to maintain or increase their voting power, and if their voting power
declines, they also lose their grip on the company. This is why managers choose cash financing to
maintain their control and ownership. This cash financing is in most cases debt financing, since
companies in most cases don’t have enough cash on hand, so they need to borrow this. Managers do not
always choose this cash financing. If managers are risk averse, this increasing debt will raise their stock
risk. Thus, managers search for an optimal debt versus shares trade-off. However, managers in target
firms prefer stock financing so they can retain power after the acquisition. Ghosh and Ruland (1998)
argue that high managerial ownership in target companies is positively related to choosing for stock
financing. Furthermore job retention for target firm managers is higher when the deal is financing with
stock.
Martin (1996) finds that when an acquiring company has high growth opportunities it is more likely to
use stock financing. Moreover, when the pre-acquisition market and acquiring firm have high stock
returns, there is also a higher chance of using stock financing. While when a company has more cash
available and has higher institutional shareholdings, the chance of financing a deal with stock is reduced.
Brown and Ryngaert (1991) conclude that if bidders have unfavorable private information about their
company’s equity, they rather choose offers with some stock. In this way they can avoid some of the
capital gains tax consequence of cash offers.
While Faccio and Masulis (2005) find that a firm rather chooses cash when a bidder’s controlling
shareholder has a certain voting power between 20-60%. They also argue that bidders prefer cash when
the voting control of their dominant shareholders is threatened. Besides this they conclude that when a
bidder has special access to bank borrowing, cash financing is more likely. Lastly, when the owner of the
bidder and target company is the same, for example when the target is under bidders control, stock
financing is more likely.
Ivashina and Scharfstein (2008) finds that new loans to large borrowers felt by 47% on the highest point
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during the financial crisis (fourth quarter of 2008) relative to the prior quarter and it felt by 79% relative
to the peak of the credit boom. Banks were tightening their loan requirements, which resulted in even less
loans to borrowers. These data suggest that managers, of the M&A deals performed during the financial
crisis, had a hard time in getting loans and were thus making use of the stock financing option. This could
imply that more stock financing was used during the financial crisis as a result of tightening the loan
requirements.
3.4 Determinants of M&A success

In order to check if M&A deals closed during a financial crisis are successful, first a set of literature is
needed on how a M&A deal could actually be successful. Beitel et al. (2003) suggest there are a couple of
variables which are able to explain M&A success. These variables are; product/activity focus of a
transaction, the geographic focus of a transaction, the size of the target, the growth focus of a transaction,
the risk reduction potential of a transaction, the profitability and the cost efficiency of the target, the
capital market performance of the target prior to the transaction, the experience of the bidder and the
method of payment.
The product/activity focus is the ratio of net interest income of a target to the total operating income of a
target. DeLong (2001) and Cornett et al. (2000) concluded that the product/activity focus has a significant
positive effect on M&A success and on value creation of M&A in the bank sector. The geographic focus
of an M&A transaction is also an important factor. When the target and bidder are located in the same
geographic location this could create more synergy potential. Houston and Ryngaert (1997) found that
this geographic focus has a positive impact on the success of M&A deals.
The size of the target is also an important factor. Kleinert and Klodt (2002) even said that the size of the
target is the most important determinant of the success of mergers. When a target company is small the
complexity of the deal is probably not that high, but there are also less synergies to gain. While when a
target company is very large the complexity would probably be very high, but also the potential synergies
to gain are higher. A company should find a good balance between the complexity and the synergies to
gain. Zollo and Leshchinkskii (2000) find that the size of the acquirer has a significantly negative impact
on the success of the M&A deal. Besides this, Seidel (1995) concludes that when the bidder finds an
optimal asset size, the bidder is more successful.
To look at the growth focus within M&A transactions, it is important to what extent the target company
grew prior to taking over this company. If a target company had a strong growth rate, the deal is being
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classified as a growth focus deal. DeLong (2001) finds that when there is focus on only the growth focus
variable, which explain the success of M&A, this variable is creating significantly more value for both the
bidder and target company.
If the bidder can reduce its risk after an M&A deal with a target company, it is making use of the risk
reduction potential. Reducing risks is a way to save costs and thus to create value. Hawawini and Swary
(1990) conclude that companies which have a risk reduction potential, have more value than companies
which do not have this risk reduction potential. Besides the risk reduction potential, two other variables
can also explain the M&A success; the profit and cost efficiency. Pilloff and Santomero (1998) find that
when the bidder is more profitable, the deal is expected to be more successful. In this way the bidder can
transfer its skills to make profits to the target company. Improving the cost efficiency after the transaction
is also positively correlated with creating value according to Pilloff (1996).
While looking at the market performance of a target, DeLong (2001) finds that if the stock performance
of the target is worse compared to similar companies, more successful M&A transactions can be
expected. The stock performance is an indication of the quality of the management. Poor stock could
mean a poor quality of the management and a probability of mismanagement. In this case value could be
created if the management would be replaced with a new and better management. With a lot of things in
life, the more experience you have in a certain field, the better you could handle similar things in the
future. The same is true in the M&A world. DeYoung (1997) finds a positive impact between the
experience of the bidder and the success rate of M&A transactions. Experience was measured by the
frequency of conducting M&A transactions.
Lastly, Beitel et al. (2003) describes the method of payment variable as an explanation of M&A success.
He argues that prior research shows that target shareholders prefer cash, while bidders only prefer cash if
they believe that their stock is undervalued, while they prefer stock when it is overvalued. However,
research from Becher (1999) shows that bank M&A deals create more value for the bidders, if the
transaction is paid with cash compared with a transaction with stock. Furthermore, several researches like
Spyrou and Siougle (2010) and Anh et al. (2010) use the announcement effect to test the successfulness of
M&A deals. Most studies use the abnormal returns, defined as the raw return minus some required return
(market return). Trying to capture this announcement effect they use a window of some days, the length
of this window varies from study to study. Returns to target firms are on average positive and statistically
significant. For acquirer firms these returns are mixed, yet many studies find negative returns following
announcements, while other studies find positive or neutral returns.
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3.5 Changing takeover premiums

Before any explanation is given as to why or how takeover premiums change, first a definition for
takeover premium should be given. The business dictionary gives the following definition: ‘The higher
value a company pays when acquiring, or buying out, another company during a merger or acquisition.
The buy will usually offer a higher, or premium, price that is above the target company’s closing stock
price. During the M&A stage, however, market fluctuations may change the target company’s fair value
and cause the buying party to readjust the acquisition premium.’ This premium could explain why
potential targets are willing to sell their company.
In an efficient market it should not be possible to make profit by buying shares of potential targets in
M&A, assuming there is no access to private or inside information. Shares of target companies normally
increase on average when the takeover is successful, but decrease on average when the deal was not
successful. Jensen and Ruback (1983) find that, because investors do not know whether bids are going to
be successful, it is not possible to make profit by buying shares of potential targets.
Even though there are severe punishments for insider trading, there are investors who do insider trading.
Investors with private or inside information are trying to make profits with it, and are buying shares of the
potential target companies. Schwert (1996) explains that the New York Stock Exchange is monitoring all
the trading and identifies unusual trading patterns. After such an unusual pattern is found, the company in
question is contacted, in order to investigate whether they have material information that could explain
this trading. In this way it is possible to identify the inside traders. This is why inside traders are trying to
disguise their trading behavior, so only they can profit from this inside information. This inside trading
however could result in higher prices for shares and thus a higher takeover premium. Insider trading is
thus not appreciated by acquiring companies. In some cases if the inside trading is too obvious the deal
can even be canceled, because the acquiring company doesn’t trust the unexpected target price run up.
Companies revise their valuations of the target’s stock during negotiations after run ups. When for
example the negotiating parties suspect another bidder which might acquire target shares, both the
original bidder as target will probably revise their valuations of the stock upwards. However, Comment
and Schwert (1995) show that the takeover premium is higher when there is only one bidder, the final
deal price then increases because of the run up before the first bid announcement.
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There are also other determinants of takeover premiums. Rossi and Volpin (2004) find that takeover
premiums are higher in countries with a higher shareholder protection. They give two explanations for
this, firstly shareholder protection reduces the cost of capital, which result in more potential synergies to
be gained and thus also increases potential competitors for the bidding. In contrast to what Comment and
Schwert earlier commented, Rossi and Volpin argue that increasing competition in bidding increases the
premium paid by the winning bidder. Secondly they say that in countries with higher shareholder
protection companies are in more cases owned by many shareholders, also called diffuse ownership. This
diffuse ownership results in a higher free-rider problem in takeovers, which forces bidders to pay a higher
takeover premium.
Eckbo (2009) explains this free-rider problem. Normally when a bidder in a takeover makes an offer, the
shareholders would tender their shares if this offer is greater than their expected value of the shares.
However if there is a high diffuse ownership, there is chance that some shareholders don’t tender their
shares. The reason for this is because if they would keep their shares and the takeover is successful, this
would increase their value, through the synergies that are captured. Because the bidder needs at least 50%
of the shares, these shareholders can free-ride on the decision of the shareholders who do tender. However
if the bidder cannot attain enough shares, because more shareholders are not willing to tender, it would
force the bidder to pay a higher price for the shares in order to still attain these shares. If all shareholders
want to enjoy the free-riding, the bidder could never attain enough shares for the takeover, which means
the takeover would never take place. Rau and Vermaelen (1998) come with an interesting argument why
takeover premiums could be higher. They say that glamour firms, measured by high market-to-book
ratios, are tending to overestimate their own ability to create synergies in the target firm, which makes
them willing to pay a higher premiums then managers of value firms, measured by low market-to-book
ratios. Rossi and Volpin however contradict this statement and did not find any evidence that the market-
to-book ratio is correlated with the takeover premium.
Nathan and O’Keefe (1989) suggest that takeover premiums are normally higher in recessions because of
the imperfections in the capital market, explaining that takeovers reflect market undervaluation, and that
this undervaluation is getting worse in recessions. In a competitive market the premium will reflect the
extent of undervaluation, and this will be the highest in recessions. In 1973-1974 different views from
investors about firm value increased as a result from the oil crisis and the unexpected inflation which
followed from this event. The events of 1973-1974 resulted in increased takeover premiums.
- 17 -
4. EMPIRICAL RESEARCH
In the preceding section the theoretical as well as the empirical findings within earlier literature are stated.
Relationships are stated between M&A behavior and the several subjects that are described above. For
example Duett et al. (2010) who finds large declines in M&A as a result of several recessions since 1980.
Further empirical research is provided in this paper. Not all previous literature is used in this empirical
research due to time and data constraints. This chapter describes the incorporated data, the hypotheses and
their explanations. Finally, the methodology is reported in order to test the hypotheses stated.
4.1 Data
In this section the data used in the empirical research is described. Furthermore, assumptions and
adjustments on the dataset are explained. The research focuses on M&A deals within the United States,
where the acquirer as well as the target are from US origins. Furthermore, the research focuses on the
financial crisis, also known as the credit crunch, which took place between 2007 and 2009. The research
uses data ranging from January 2000 until December 2010. There are different variables for the sub
research questions, these variables are collected and gathered in several datasets. Data is gathered from
different databases, including SDC Platinum, Zephyr and the Federal Reserve.
In order to test whether the number of M&A deals is reduced during a financial crisis, several variables
are needed. First of all the number of M&A deals between January 2000 and December 2010 is collected
from SDC Platinum. In order to get the right data, a few constraints are used, namely; all cross-border
deals are excluded. Besides this the M&A deals have a minimal value of at least 1 million US dollar and
deals are either completed or unconditional. Secondly, with all datasets used in this research, a certain
time frame for the credit crunch was needed. Zinkovskaya (2008) used a probability model, which can
account for non-linearity between the causes of a crisis and its outbreak. This is a good way to analyze a
financial crisis, as with a financial crisis the effects suddenly take place, while at the same time such an
outbreak is built up slowly. The model gives the value 1 during a crisis and 0 otherwise, which is a
common way in identifying crises (e.g. Eichengreen et al., 1996; Frankel and Rose, 1996; Kaminsky and
Reinhart, 1999). The definition of a crisis in this model is: “ a period of extreme pressure in the foreign
exchange market, measured with the index of exchange market pressure (EMP) – a weighted average of
three possible outcomes of speculative attacks: exchange rate devaluations, loss of international reserves,
and interest rate hikes (Zinkovskaya, 2008).”
A crisis period is met when excessive values of exchange market pressure exceed a specified
threshold, which is expressed by a number of standard deviations over the index sample mean.
- 18 -
Zinkovskaya follows the study of Goldstein et al. (2000) in which this threshold is set at 3 standard
deviations in excess of the country average. However, for better results the threshold in this study is set to
2 standard deviations. To equalize the conditional volatility the model uses the inverse of the standard
deviations for each series in order to weight the additives. This gives the following model:
Crisist = 1 if EMPt > µEMP + 2 x σEMP

(& 23 months before)
= 0 otherwise
EMPt ≡ αΔet − βΔrt +γΔit, where

Δet : percentage rate of the nominal exchange rate depreciation,
Δrt : percentage changes in liquid international reserves,
Δit : changes in short-term interest rates.
The crisis variable of 1 is not only assigned in the month when the EMP index exceeds the threshold but
also 23 months before. This action is justified by the fact that economic variables show decadence 12 to
19 months before a crisis (Kaminsky et al., 1998).
Another variable used is the Gross Domestic Product (GDP) growth. As already stated, Luypaert
and Huyghebaert (2007) expect, under good business conditions, higher M&A activity when the GDP is
growing. For this variable the percentage change from the preceding period in real GDP is used from the
U.S. Bureau of Economic Analysis. Because this data was quarterly, a monthly average is used to test the
hypothesis. As Kamaly (2007) explained that M&A was positively related to stock prices, the S&P 500
US monthly closing data was also used. This free-float capitalization-weighted index gives a reliable
image of the developments on the stock market. It contains the 500 biggest American companies and the
prices of their common stock which is actively traded in the United States (see also Standard & Poors,
2012). Another variable which can explain the M&A activity is the openness of the economy, di Giovanni
(2005) found evidence for this complementarity. The common measure of openness of the economy is the
ratio of the sum of imports and exports to GDP. This data is gathered from the World Bank databases.
As Auerbach (1988) concluded that there was a certain relation between a tax environment and
M&A behavior, the variable tax regime is used in the dataset. Trying to capture the aggregate effects of a
change in a tax regime the research uses a dummy variable, stating the value 1 after a certain change in
tax regime and the value 0 otherwise. In the time frame of this research two major tax regime changes
- 19 -
took place; first of all the ‘Economic Growth and Tax Relief Reconciliation Act of 2001’ and secondly
the ‘Jobs and Growth Tax Relief Reconciliation Act of 2003’. In the dataset the variables (value 1 or
value 0) of these two tax regime changes are divided amongst two different columns.
In order to check whether M&A deals are financed differently during a financial crisis, data is
used from the database Zephyr. The same constraints as in SDC Platinum are used. Furthermore, deals are
categorized by their method of payment. Deals are either paid with cash, shares or a mix of both. Another
variable which has influence the way M&A deals are financed is the willingness of banks to lend. As
Ivashina and Scharfstein (2008) states that during the financial crisis banks were tightening their loan
requirements, which resulted in less loans to borrowers and which could have a significant effect on the
way M&A deals were financed during the financial crisis. To measure the willingness of banks in giving
loans the borrowings banks growth rate is used. With the underlying thought that if the borrowings banks
growth rate is growing, banks have a greater willingness to lend. The borrowing banks growth rate is an
average from all U.S commercial banks. Additionally, it is seasonal and break adjusted. The data is
collected from the database of the Federal Reserve (2012).
In order to test whether M&A deals closed during a financial crisis are successful, the
announcement effect, described in the previous literature, is used. Spyrou and Siougle (2010) uses a
model where abnormal returns of stock i on day t (ARit) is defined as the difference of the return of stock
on day t (Rit) and the market return (RMt) as follows: ARit = Rit - RMt. This research furthermore uses a
Beta to correct for differences in the volatility of a stock in relation to the volatility of the benchmark.
This Beta is calculated by the covariance between the rates of return divided by the variance of the market
return. In order to get a precise Beta, the rates of return are calculated with a time window of one year.
This gives the following model: ARit = Rit - ( β *RMt ). This research uses a time window of three days
(-1, +1), where day 0 is the initial announcement date. The abnormal returns are tested for significant
difference comparing a non-crisis period with a financial crisis period. In this research the S&P 500 index
is used for the market returns and the 400 biggest M&A deals between 2000 and 2010 from SDC
Platinum are used as a subsample. After correcting the subsample and removing deals where data was
missing, a total of 326 data points remained. According to Beitel et al. (2003) the size of the target also
has an influence on the M&A success. In this dataset the deal value of the M&A deal is used as the size of
the target including goodwill. Besides this, the method of payment could, according to Beitel et al.
(2003), also explain the M&A success. This research uses a dummy variable with the value 0 for a
payment with shares, and the value 1 for everything else. The data is collected from the Zephyr database
and from Center for Research in Security Prices (CRSP).
- 20 -
For the research question whether takeover premiums change during a financial crisis, the
variable bid premium in percentage at the announced date is used. The data comes from the Zephyr
database and has the same constraints as the constraints that were used in SDC Platinum. Only M&A
deals were the bid premium was a known value, are used. To test the research question concerning
takeover premiums, the research also uses the Zinkoyskaya model. However the data ranged from January
2000 to December 2010, with a monthly interval. In order to use the right data for the bid premium, the
data is sorted on date and monthly averaged.
The reason for choosing the United States in this research is that a lot of data is available for this
country. Furthermore it is also to supplement earlier literature concerning variables that explain M&A
behavior in this country. Besides this, complex interplay of valuation and liquidity problems which
originated from the United States triggered the credit crunch (Simkovic, 2009). This is the reason why
choosing this country is so interesting. The data explained in this subsection together with the literature
from section three creates the further fundament of this research. The hypotheses, needed to test the main
research question, and the methodology, needed to obtain results on which can be reflected, are followed
in the next subsections.
4.2 Hypothesis
Before describing the research model in the methodology, first the hypotheses are stated based on both
the literature and the dataset which has been gathered. Investigating the impact of a financial crisis on
M&A deals is the main goal of this paper. With every sub research question a hypothesis is also stated.
The hypotheses and a brief explanation for each are stated below.
Hypothesis 1: A financial crisis has a significant negative effect on the number of M&A deals.
This first hypothesis is the most general and once it is answered, it gives a general view of what
the impact of a financial crisis on M&A deals is. The expected outcome is that a financial crisis results in
a decline in the number of M&A deals and thus has a significant negative effect. The literature review
states that financial crisis provided fear and insecurity, and would state that it has a negative effect of
M&A deals.
Hypothesis 2: A financial crisis has a significant relationship with changing motives behind an M&A
deal.
- 21 -
This hypothesis cannot be tested properly with data, as there is no data about the motives behind
M&A deals. This information thus needs to be found in the existing literature. Looking at earlier works it
is expected that motives would change as a result of a financial crisis. The literature describes different
motives, although it is not really giving an answer whether motives behind an M&A deal would change
or not, as a result of a financial crisis.
Hypothesis 3: A financial crisis has a significant negative effect on paying M&A deals with shares.
When testing this hypothesis, it is expected that a financial crisis would result in a change in
financing behavior concerning M&A deals. The literature states for example that banks were tightening
their loan requirements and gave less new loans to borrowers, as a result of the financial crisis. Lending in
this time could result in higher costs, as the interest of the loans would increase. Other options like paying
an M&A deal with shares could also be negative, especially when a company does not need more
beneficiary owners.
Hypothesis 4: A financial crisis has a significant negative effect on the number of successful M&A
deals.
During a crisis it can be harder for companies to strive, it is expected that a financial crisis would
have a significant negative effect on the number of successful M&A deals. The literature gives a lot of
explanations how M&A deals could be successful, but it has to be tested in order to give any conclusion
on this topic.
Hypothesis 5: A financial crisis has a significant positive effect on the size of takeover premiums
in M&A deals.
After testing this hypothesis it would be expected that a financial crisis has a positive effect on
the size of takeover premiums. According to the literature the takeover premiums would be higher in
recessions because of the imperfections in the capital market. This results in acquiring companies paying
more for a takeover premium, in a time when the economy already is unstable. The next section describes
the methodology needed to test the five hypotheses stated above.
- 22 -
4.3 Methodology
In order to test the hypotheses a model needs to be stated which could explain the impact of a financial
crisis on M&A deals. The sub research questions need to be answered with the several variables collected
from the dataset. This research has different datasets for the different sub research questions.
First statistical analyses are performed on the variables, where the dependent variable is revised in order
to check whether there is a pattern in the dataset. Besides that all variables are plotted to look whether
there are possible outliers. If this is the case corrections are made in the datasets. Furthermore
multicollinearity checks are performed using the Pearson correlation estimates. All this is done in order to
make corrections in the dataset where needed, so there would be a clean and good dataset for usage. With
this correct dataset a first OLS regression can be performed.
Also assumption tests which check for serial correlation in the residuals (Durbin Watson test),
normal distribution, heteroscedasticity and linearity between the dependent and independent variables,
need to be performed. These tests need to be performed in order to exclude the probable misspecification
of the model. When these assumption tests all make it through, the model will be strong in predicting
relationship among the variables. Then the hypotheses can be tested, the outcome of the tests are analyzed
and compared to earlier literature. After this well founded conclusions can are given. The results are given
in the following section.
- 23 -
5. RESULTS
The previous section described the data, hypotheses and methodology needed to perform the empirical
research of this paper. In this section both the results of this research and a reflection of the outcomes with
those of earlier literature is given. First, the analysis of the most important outcomes and consequences
from the research are given by testing the hypotheses. Hereby the data and methodology is used from
section four. Furthermore, these results will be reflected against the earlier relevant literature as described
in section three.
5.1 Results of the empirical research

This research has different datasets for the different sub research questions. The variables that are used in
this research are described in section 4.1. Together with the methodology described in section 4.3, an
analysis is performed over the variables of the United States over the years 2000-2010. A first analysis
will be of the variables in order to indicate the dynamic specification. As a starting point the variable
Crisis is shown in Graph 1.
Graph 1: Normal Probability Plot
-1
-1.2
-1.4
-1.6
Z-value
-1.8
-2
-2.2
-2.4
-2 0 2 4 6 8 10
Outcome Zinkovskaya model
This graph shows a normal probability plot of the outcomes of the Zinkovskaya model concerning whether there is a financial
crisis for the United States over a period 2000-2010. Source: FederalReserve.gov
- 24 -
From the graph it can be seen that there are two outliers which are the last two data points of the sample.
An explanation for this discrepancy is that these two data points have both the highest change in
percentage rate of the nominal exchange rate depreciation, and the biggest change in the short-term
interest rates in the Zinkovskaya model. However, these outliers would not change the outcome of this
research, because according to the Zinkovskaya model these two points would result in the value 0.
When looking at the results of the model it can be said that both May 2009 and June 2009 exceeds the
threshold and will give the value 1. According to the model also the 23 months before should then be
given the value 1. With this information it can be said that the Zinkovskaya model states that the financial
crisis, also known as the credit crunch, started at June 2007 and ended at June 2009.
However, this research will use a later ending date, namely November 2010. Several incidents happened
between June 2009 and November 2010. It can be said that there was still economic turbulence and
disruption on the economic markets in the United States. For example, at the end of the first quarter of
2010 almost 10% of the US mortgage loans were seriously delinquent, which means that they are already
90 days or more overdue (see also MBA, 2010). Furthermore, in the first week of December 2010 the
Federal Reserve reported that the financial crisis was finally over (Cox, 2010). Banking analyst Dick
Bove said: “The Federal Reserve is back to its old game of funding U.S. Treasury debt. The private sector
may now be certified as ‘healthy’”. These results are used in the datasets, when testing the hypotheses.
As previously stated there are different datasets for the different sub research questions. This leads to
multiple regressions and different results. That is why in the following paragraphs the results are
presented per sub research question.
Dataset 1
The first dataset contains the number of M&A deals, the GDP growth rate, the S&P monthly closing data,
the openness of the economy and the changes in tax regimes (2001 and 2003). To analyze and specify the
first dataset, the independent variables are checked on correlation with the dependent variable and
presence of multicollinearity. Table A1, located in the appendices, shows the Pearson correlation
outcomes. Looking at these results it is found that both the GDP growth rate and the Tax Regime change
in 2003 are not significantly correlated with the number of M&A deals. The variables Crisis (-0.221),
S&P Closing Data (0.493), Openness Economy (0.188) and the Tax Regime of 2001 (-0.258) are on the
other hand highly correlated. This gives a good first impression, that if there is a crisis it would result in
less M&A deals. Furthermore, the better the S&P index does and the more open an economy is, the more
- 25 -
M&A deals are closed. After checking the data, it can be stated that there is no multicollinearity in the
data sample, as none of the correlation is higher than 0.70.
The results of the OLS regressions of dataset 1 are stated on the left side of Table 1. With a significant F
statistic it can be said that the model as a whole has statistically significant predictive capability. Except
for the GDP growth rate and the Openness Economy, all variables are significant. The GDP growth rate
and the Openness Economy remain in the model as the results concerning these variables can be reflected
on earlier literature regarding their relationships with number of M&A deals (see section 3.1). Like the
Pearson correlation, the OLS regression outcomes also show that Crisis and Tax Regime 2001 have a
significant negative effect. As the S&P Closing Data has a positive effect. Note that Tax Regime 2003
predicts a positive, not significant, relation in the Pearson correlation test, while it does have a significant
positive effect in the OLS regression. The model has an adjusted R2 of 30.1%, which means that 30.1% of
the variance in the number of M&A deals can be explained by the model. To check for possible
misspecifications in the model four assumption tests are performed.
The Durbin-Watson test gives a value of 1.688, this value is between the lower and upper limit of the
critical values (see also Stanford University, n.d.), when testing for positive autocorrelation at a 1% level
of significance. This means that there is test is inconclusive. Graph A1a, located in the appendices, shows
that the residuals are normally distributed, furthermore the linearity assumption can be accepted, as the
residuals follow a pattern along the diagonal line in the normal probability plot (Graph A1b). Graph A1c
shows that there is heteroscedasticity as the residuals move apart from each other against the regression
estimates. After using the weighted least squares (WLS) regression, the more precise observations are
given greater weight in determining the regression coefficients. Nevertheless, this does not result in better
results without heteroscedasticity. Therefore, the model in Table 1 is kept in its original form.
Because it is unusual to see such high coefficients as in the left side of Table 1, a log transformation is
performed on the variable Number of M&A deals. The results of this regression can be found on the right
side of Table 1. It can be said this gives a better model, as both the F statistic as the adjusted R2 have
improved. Besides this the Durbin-Watson gives a value of 1.926, meaning that there is almost no
autocorrelation in the sample.
The results of Table 1 show that a Crisis would result in less closed M&A deals. Furthermore, when the
S&P Closing Data are high, which means that the top 500 US companies are doing a good job, the
number of M&A deals closed rises. Lastly it can be said that while the Tax Regime change of 2001 had a
- 26 -
negative effect on the number of M&A deals closed, the Tax Regime change of 2003 has a positive effect
on the number of M&A deals.
Table 1: Regression results Dataset 1

This table shows the results from the OLS regression on the number of M&A deals. The left side of the table displays the results
with the variable Number of M&A deals, the right side of the table displays the results with a log transformation of the variable
Number of M&A deals. The test is performed with data from the United States in the years 2000 until 2010. The variable Crisis
shows whether there is a financial crisis; note that when there is a crisis less M&A deals are closed. GDP Growth rate stands for
the growth rate in percentage of the gross domestic product of the U.S. S&P Monthly Closing Data stands for how the top 500
US companies are doing. Openness of the Economy stands for the ratio of the sum of import and exports to GDP. Furthermore,
Tax Regime of 2001 and Tax Regime of 2003 stand for certain changes in the tax regime of the United States in the relevant
years. The variables lead to the following model:

& ,
∗ , ∗ , ! ∗ "&# , $ ∗ %&'(, ) ∗ *+′1, - ∗ *+′3,
/
** Significant at 99% confidence level. *Significant at 95%.
Dataset 1 Dataset 1 (log transformation)
Coeff. t-Stat. Coeff. t-Stat.
Intercept -36125 0.766 -4.174 14.050**
Crisis -30343 -3.172** -0.174 -2.886**

GDP Growth rate -3913 -1.036 -0.022 -0.942
S&P Closing Data 77 2.800** 0.001 3.563**
Openness Economy 11940 0.385 -0.053 -0.271
Tax Regime of 2001 -26853 -2.064* -0.202 -2.464*
Tax Regime of 2003 26528 2.485* 0.253 3.757**
F statistic 10.408** 13.777**
Mean Squared Error 1.19E+09 0.047

Adjusted R-square 0.301 0.369
Durbin Watson Statistic 1.688 1.926
N 132 132
After revising the results of Dataset 1 the first hypothesis (H1) is supported. The empirical research for
hypothesis 1 finds that a Crisis has a significant negative effect on the number of M&A deals closed. In
section 5.2 a further reflection on the results from Dataset 1, using earlier literature, is given.
Dataset 2
The second dataset is compiled in order to test hypothesis 3. Two OLS regressions are performed to see
whether there has been a change in the method of payment for M&A deals. In the first regression the
- 27 -
dependent variable is Shares (% of total), were in the second regression the dependent variable is Cash (%
of total). Furthermore, it has the independent variables Crisis, GDP growth rate and the Borrowings
Banks growth rate. Again, the independent variables are checked for correlation with the dependent
variables, also a multicollinearity test is performed on the data. Table A2, located in the appendices,
shows the outcomes of the Pearson correlation test, showing that the GDP growth rate is not significantly
correlated with the dependent variable Shares (% of total). However, it is significant correlated with Cash
(% of total) and Mixed (% of total). Furthermore, the Borrowings Banks growth rate is not significant
correlated with any of the payment methods (Shares, Cash and Mixed). The variable crisis is on the other
hand highly correlated with all dependent variables; Shares, Cash and Mixed. The first impression that
can be derived from these results is that a Crisis results in less M&A deals closed with Shares or with the
Mixed payment method. In fact during a Crisis more M&A deals are closed paying with Cash.
Furthermore, the higher the GDP growth rate the less Cash is used and more Mixed payment occur. After
checking the data, there is no multicollinearity found between the dependent variables and the
independent variables, as none of these correlations are higher than 0.70.
The results of the OLS regressions of dataset 2 are stated in Table 2 and Table 3. When looking at the
results of the first OLS regression the significant F statistic shows that the model as a whole has
statistically significant predictive capability. Looking at the variables it can be seen that only the variable
Crisis is significant. As predicted earlier in the Pearson correlation test, the outcomes show that Crisis has
a significant negative influence on paying M&A deals with shares. The model has an adjusted R2 of 5.4%,
which means that 5.4% of the variance in paying M&A deals with shares can be explained by the model.
To check for possible misspecifications in the model four assumption tests are performed.
While testing the linearity assumption it was found that certain non-linearity existed. The normal
probability plot of the regression standardized residual showed evidence of “bowed” pattern. After
performing a log transformation on the dependent variable Shares, the linearity assumption could be
accepted (Graph A2b, located in the appendices). Furthermore, Graph A2a shows that the residuals are
normally distributed. Graph A2c shows that there is heteroscedasticity as the residuals move a bit apart
from each other against the regression estimates. As the heteroscedasticity is not that severe the model is
kept in its original form. Looking at the Durbin-Watson test gives a value of 1.157, which is less than
lower limit of the critical values (see also Stanford University, n.d.). (1.555), when testing for positive
autocorrelation at a 1% level of significance. This means that there is statistical evidence that the error
terms are positively autocorrelated. As the outcome is not that far from the lower limit of the critical
values and not less than 1.0, there is no need for changes in the model.
- 28 -
The result of Table 2 shows that a Crisis would result in less M&A deals being paid with shares.
Furthermore, it can be said that both the Borrowings Banks growth rate and GDP growth rate do not
significantly influence changes in paying M&A deals with shares.

This table shows the results from the OLS regression on the number of M&A deals paid with shares. The test is performed with
data from the United States in the years 2000 until 2010. The variable Crisis shows whether there is a financial crisis; note that
when there is a crisis less M&A deals are paid with shares. GDP growth rate stands for the growth rate in percentage of the
gross domestic product of the U.S. The Borrowings Banks growth rate stands for the average growth rate of the borrowings
from all U.S. commercial banks. It is a break and seasonally adjusted monthly growth rate. The variables lead to the following
model:

& & 012 2 , ∗ , ∗ , ! ∗ 33 , /

Dataset 2
Coeff. t-Stat.
Intercept 0.889 24.435**
Crisis -0.179 -3.176**

GDP growth rate -0.001 -0.937
Borrowings Banks growth rate -0.018 -0.706
F statistic 3.509*
Mean Squared Error 0.070

Adjusted R-square 0.054
Durbin Watson Statistic 1.157
N 132
After the second OLS for dataset 2 it became evident that there was heteroscedasticity in the model. First
a log transformation on the dependent variable Cash was performed, and the linearity assumption could
be accepted (Graph A3b, located in the appendices). Furthermore, Graph A3a shows that the residuals are
normally distributed. The log transformation however did not fix the heteroscedasticity, as the residuals
still move from each other against the regression estimates (Graph A3c). After using the weighted least
squares (WLS) regression, the variable Borrowings Banks growth rate was given greater weight in
determining the regression coefficients because it was believed to be the cause of the heteroscedasticity.
This resulted in better results for the model, stated in Table 3.
- 29 -
Looking at the Durbin-Watson test gives a value of 1.694, which is more than the upper limit of the
critical values (1.646), when testing for positive autocorrelation at a 1% level of significance. This means
that there is no statistical evidence that the error terms are positively autocorrelated. While looking at the
other results of the WLS regression, the significant F statistic show that the model as a whole has
statistically significant predictive capability. Furthermore, the variables Crisis and GDP growth rate are
both positively significant. The model has an adjusted R2 of 27,3%, which means that 27,3% of the
variance in paying M&A deals with cash can be explained by the model.
The result of Table 3 shows that a Crisis would result in more M&A deals being paid with cash. Also the
GDP growth rate is higher more deals are paid with cash. The variable Borrowings Banks growth rate
does not significantly influence changes in paying M&A deals with cash.

This table shows the results from the OLS regression on the number of M&A deals paid with cash. The test is performed with
data from the United States in the years 2000 until 2010. The variable Crisis shows whether there is a financial crisis; note that
when there is a crisis more M&A deals are paid with cash. GDP growth rate stands for the growth rate in percentage of the gross
domestic product of the U.S. The Borrowings Banks growth rate stands for the average growth rate of the borrowings from all
U.S. commercial banks. It is a break and seasonally adjusted monthly growth rate. The variables lead to the following model:

& & 012 #2 , ∗ , ∗ , ! ∗ 33 , /

Dataset 2
Coeff. t-Stat.
Intercept 1.866 778.779**
Crisis 0.056 6.898**

GDP growth rate 0.022 5.381**
Borrowings Banks growth rate 0.001 1.401
F statistic 17.359**

N 132
After revising the results of Dataset 2 the third hypothesis (H3) is supported. The empirical research for
hypothesis 3 finds that a Crisis has a significant negative effect on paying M&A deals with shares. In
section 5.2 a further reflection on the results from Dataset 2, using earlier literature, is given.
- 30 -
Dataset 3
The third dataset is trying to test the effect of a financial crisis on the number of successful M&A deals.
In order to test hypothesis 4 certain variables are included in the dataset. First of all the announcement
effect, calculated with the formula from section 4.1, is added as a percentage to the dataset. After
gathering the available stock data for the 400 biggest M&A deals between 2000 and 2010, it became
evident that some data was not available. After removing the M&A deals for which there was no data,
326 M&A deals remained. For these M&A deals the announcement effect was calculated. Moreover the
variables Target Size and the Method of Payment are included in the dataset. The Pearson correlation test
is performed again to check for correlation between the variables and to check for the presence of
multicollinearity. Table A3, located in the appendices, shows the Pearson correlation outcomes. When
looking at these results it can be said that the Method of Payment is significantly correlated with the
Crisis and Target Size and the Announcement Effect. However, the Announcement Effect is not
significantly correlated with Target Size, which is a remarkable outcome, as according to the literature a
correlation is expected. Besides this the Announcement Effect is also not correlated with the variable
Crisis. After checking the data, it can be stated that there is no multicollinearity in the data sample, as
none of the correlation is higher than 0.70.
The results of the OLS regressions of dataset 3 are stated in Table 4. With a significant F statistic it can be
said that the model as a whole has statistically significant predictive capability. Except for Crisis, all the
variables are significant. Like the Pearson correlation, the OLS regression outcomes show that Target
Size has a negative effect on the Announcement Effect. As that the Method of Payment has positive effect
on the Announcement Effect. Note that while in the Pearson correlation test the Target Size is not
significantly correlated, while in the OLS regression it does have a significant positive effect. However
the coefficient of the variable Target Size is 0.000, which means that even though the variable is
significant, it is not really informative. As the effect of the Target Size on the abnormal returns from the
announcement effect is almost insignificant in coefficient size. The model has an adjusted R2 of 2.5%,
which means that 2.5% of the variance in the number of M&A deals can be explained by the model. To
check for possible misspecifications in the model four assumption tests are performed.
The Durbin-Watson test gives a value of 2.078, which is more than the upper limit of the critical values
(1.763), when testing for positive autocorrelation at a 1% level of significance. This means that there is no
statistical evidence that the error terms are positively autocorrelated. A value of 2.000 means that there is
no autocorrelation in the sample, in this case there is almost no autocorrelation. Graph A4a, located in the
appendices, shows that the residuals are normally distributed. Furthermore, the linearity assumption can
- 31 -
be accepted, as the residuals follow a pattern along the diagonal line in the normal probability plot (Graph
A4b). Graph A4c shows that there is no heteroscedasticity, as the residuals do not move apart from each
other against the regression estimates.
The result of Table 4 shows that a Crisis does not have a significant effect on the abnormal returns from
the announcement effect. The target size however does have a negative significant effect, which means
that the bigger the target, the lower the abnormal returns from the announcement effect. However because
of the coefficient of 0.000 it is not really informative. Furthermore, the method of payment has a positive
significant effect, which means that deals that are paid with cash result in higher abnormal returns from
the announcement effect.

This table shows the results from the OLS regression on the abnormal returns from the announcement effect. The test is
performed with data from the United States in the years 2000 until 2010. The variable Crisis shows whether there is a financial
crisis. Target Size stands for the size of the target including goodwill in EUR. Method of Payment stands for the primary method
of payment, either cash or shares. The variables lead to the following model:
' 1' '''#'1 ( #1 ,

∗ , ∗ * 1"4, ! ∗ 5'1
12 , /

Dataset 3
Coeff. t-Stat.
Intercept -1.126 -1.395
Crisis -0.573 -0.742

Target Size 0.000 -2.269*
Method of Payment 1.752 2.047*
F statistic 3.752*

N 326
After revising the results of Dataset 3 the fourth hypothesis (H4) is rejected. The empirical research for
hypothesis 4 finds that there is no significant relation between a Crisis and the Abnormal returns
Announcement Effect. In section 5.2 a further reflection on the results from Dataset 3, using earlier
literature, is given.
- 32 -
Dataset 4
Dataset 4 is compiled to give an answer to hypothesis 5. Dataset 4 contains the variables: monthly
average Bid Premium, Crisis, GDP growth rate, S&P monthly closing data and the Openness Economy.
The variables are checked for correlation and for the presence of multicollinearity. Table A4, located in
the appendices, shows the outcomes of the Pearson correlation test. Three independent variables have a
significant relationship, with Crisis (0.240), GDP growth rate (-0.434) and S&P Closing Data (-0.305).
Bid Premium and the GDP growth rate have the highest correlation. Furthermore, there is no significant
relation between monthly average Bid Premium and the Openness Economy. These correlations indicate
that a Crisis would result in higher bid premiums. While when a GDP growth rate is higher and when the
S&P market is high, a bid premium would decline. There is no multicollinearity, as none of the
correlation is higher than 0.70.
The results of the OLS regressions of dataset 4 are stated on the left side of Table 5. With a significant F
statistic it can be said that the model as a whole has statistically significant predictive capability. The S&P
Closing Data is not significant in the model, however for better results it will remain in the model. The
model has an adjusted R2 of 27,5%, which means that 27,5% of the variance in the monthly average Bid
Premium can be explained by the model. To check for possible misspecifications in the model four
assumption tests are performed. The Durbin-Watson test gives a value of 2.008, this means that there is
no auto correlation in the data sample. Graph A5a, located in the appendices, shows that the residuals are
almost normally distributed. Furthermore, the linearity assumption can be accepted, as the residuals
follow a fairly good pattern along the diagonal line in the normal probability plot (Graph A5b). Graph
A5c shows that there is a mild heteroscedasticity as the residuals move apart from each other against the
regression estimates. After using the weighted least squares (WLS) regression, the more precise
observations are given greater weight in determining the regression coefficients. Nevertheless, this does
not result in better results without heteroscedasticity and therefore the model in Table 5 is kept in its
original form.
Because it is unusual to see such high coefficients as in the left side of Table 5, a log transformation is
performed on the variable Monthly average Bid Premium. The results of this regression are stated on the
right side of Table 1. Although it gives lower coefficients, the F statistic as the adjusted R2 are lower.
However the Mean Squared Error has improved a lot, from 263.368 to 0.029. This means that the new
model explains the variability in the observations with an almost perfect accuracy.
- 33 -
The results of Table 5 shows that a Crisis would result in larger monthly average Bid Premiums.
Furthermore, when the GDP growth rate is high, implicating an economy is growing, the monthly average
Bid Premiums would become smaller. The Openness of an Economy also has a significant negative effect
on the monthly average Bid Premiums.

This table shows the results from the OLS regression on the monthly average Bid Premium. The left side of the table displays the
results with the variable Monthly average Bid Premium, the right side of the table displays the results with a log transformation
of the variable Monthly average Bid Premium. The test is performed with data from the United States in the years 2000 until
2010. The variable Crisis shows whether there is a financial crisis; note that when there is a crisis the Bid Premium increases.
GDP Growth rate stands for the growth rate in percentage of the gross domestic product of the U.S. S&P Monthly Closing Data
stands for how the top 500 US companies are doing. Openness of the Economy stands for the ratio of the sum of import and
exports to GDP. The variables lead to the following model:

'125 6 3 , ∗ , ∗ , ! ∗ "&# , $ ∗ %&'(, /
Dataset 4 Dataset 4 (log transformation)
Coeff. t-Stat. Coeff. t-Stat.
Intercept 117.166 6.454** 2.453 12.810**
Crisis 14.201 3.173** 0.184 3.902**

GDP Growth rate -8.203 -4.959** -0.079 -4.555**
S&P Closing Data 0.003 0.240 0.000 1.048
Openness Economy -37.972 -3.269** -0.496 -4.049**
F statistic 13.443** 12.633**
Mean Squared Error 263.368 0.029

Adjusted R-square 0.275 0.262
Durbin Watson Statistic 2.008 1.784
N 132 132
After revising the results of Dataset 4, hypothesis 5 (H5) is supported. The empirical research for
hypothesis 5 finds that a Crisis has a significant positive effect on the size of a takeover premium. This
subsection has stated the results of the empirical research performed in this paper. The next section (5.2)
will reflect on these findings and will contribute to drawing up the conclusions.
- 34 -
5.2 Reflection on the results

In this section the results from the empirical research are reflected against the previously described
literature. The outcomes from the different datasets, such as takeover premium changes during a financial
crisis, are discussed.
The crisis has a negative significant effect on the number of M&A deals. This result is coherent with
earlier studies. Waschiczek (2008) argued that the financial crisis of 2007 resulted in tightening of the
credit standards for loans which affected the M&A transactions. This is also in accordance with the
research from Duett et al. (2010) stating that a recession is correlated with lower number of M&A deals.
Explaining factors are financing difficulties and a general fear and insecurity about the economic future.
The variable GDP Growth rate is first of all not correlated, but furthermore it does not have a significant
influence with the number of M&A deals. Previous literature (Luypaert and Huyghebaert, 2007) however
do find a positive relation between the two variables. When looking at the model as a whole and at the
data used, two possible explanations can be given. The S&P Closing Data is also included in the model,
this variable has a significant correlation with the GDP Growth rate, which could result in different
outcomes for the GDP Growth rate. Besides this data for the GDP Growth rate for the United States for
the years 2000-2010 was only quarterly available. This research uses a monthly average of this quarterly
data, which could explain distortions in the results of the model.
Another determinant of changes in number of M&A deals is, the S&P Closing Data. The results
of this research show a positive relation between the monthly closing data of the S&P 500 index and the
number of M&A deals. This is coherent with the study of Kamaly (2007). The variable Openness
Economy does not have a significant influence of the number of M&A deals. This is contrary to previous
literature (Di Giovanni, 2005). This research however differs with that of Di Giovanni, as only M&A
deals are collected, where the ultimate owners are from the United States. Di Giovanni also looks at
cross-border M&A deals, which could explain the different outcome.
The variables Tax Regime of 2001 and Tax Regime of 2003 both have a significant effect on the
number of M&A deals. The change in tax regime of 2001 has a negative effect while change in tax
regime of 2003 has a positive effect. This is coherent with Auerbach (1988), arguing that changes in tax
regimes could have significant (positive or negative) influence on the number of M&A deals.
Dataset 2 checked whether a financial crisis would have a significant negative effect on paying M&A
deals with shares. Results show that there were less M&A deals paid with shares, and thus that a financial
crisis would have a negative influence on the number of M&A deals paid with shares. Instead of paying
with shares, the results also show that more M&A deals were paid with cash. Previous literature found
- 35 -
that when M&A deals are financed with cash, it could mean that the shares are undervalued (Masson,
2010). A possible explanation for the change in financing M&A deals could be that during a financial
crisis stock are more easily undervalued, because of the fear and lack of trust in the economy (see for
example Anon, 2011). If this is the case, companies would not want to pay their M&A deals with shares,
as their shares are undervalued and less worth if they would pay with them. That is why they would pay
with cash instead of paying with shares. Another explanation for choosing the cash financing could be the
pecking order theory, which states that managers tend to prefer internal versus external financing. That is
why they would prefer cash first. Maybe managers would more rely on theories such as the pecking order
theory during situations of distress, in this case a financial crisis.
The GDP growth rate has a significant positive effect on the number of M&A deals paid with
cash. So when the economy is growing, as well as its GDP, M&A deals are more likely to be paid with
cash. This result is remarkable, as M&A deals are also more likely to be paid with cash when there is a
financial crisis. This would mean that whether there is a financial crisis or not, when the GDP growth rate
is growing, M&A deals are more likely financed with cash. A possible explanation would be that when an
economy is growing, and doing better, banks are more willing to lend money, which would make cash
financing more easily.
Previous literature stated that when a bidder has special access to bank borrowing, cash financing
is more likely. However the Borrowings Banks growth rate is not significant influencing the method of
payment for M&A deals. In this research it is assumed that the Borrowings Banks growth rate would say
something about the willingness of banks to lend. Maybe this assumption is wrong, as loans could
increase while banks were still tightening their loan requirements, which eventually says something about
the willingness of banks to lend. Further research could take a different benchmark to measure the
willingness of banks to lend.
Dataset 3 tested whether a financial crisis has a significant negative effect on the number of successful
M&A deals. In order to test whether M&A deals closed during a financial crisis are successful, the
announcement effect is used. Results show that no significant relation between the variable Crisis and
Abnormal returns from the Announcement Effect. Although it was expected that it’s harder to perform
during a crisis, this research did not find this relation. However, no previous literature was found to
backup this result. Whether this result is the right outcome is not defined by just one research,
furthermore maybe the data used in this research resulted in this outcome. Further future research is
needed to give a good conclusion on the successfulness of M&A deals during a financial crisis.
According to Kleinert and Klodt (2002) the size of the target is the most important determinant of
the success of mergers. This relation is also found in this research. The results show that the size of the
- 36 -
target has a significant negative relation with the abnormal returns from the Announcement Effect. In
other words the bigger the targets the smaller the number of successful M&A deals. Previous literature
state the same negative impact on the success of the M&A deal (Zollo and Leshchinkskii, 2000).
However because the coefficient of the variable Target Size is 0.000, the result and outcome regarding
this variable is not that informative. As the effect of the Target Size on the abnormal returns from the
announcement effect is almost insignificant in coefficient size.
Furthermore, the method of payment is significantly positive related with the abnormal returns
from the Announcement Effect. Deals that are paid with cash result thus in higher abnormal returns, and
thus are, according to the definition in this research, more successful. According to earlier research
(Becher, 1999); M&A deals create more value for the bidders if the transaction is paid with cash
compared with a transaction with stock. Beitel et al. (2003) also describes the method of payment as an
explanation of M&A success.
After testing dataset 4, results show that takeover premiums are significant positive related to a financial
crisis. The study of Nathan et al. (1989) had similar results; takeover premiums were higher in recessions.
Imperfections in the capital market explain this behavior, as in recessions undervaluation will distort
takeover premiums significantly. The S&P Closing Data does not have a significant influence on takeover
premiums in this research. This could be explained by the correlation it has with both the GDP Growth
rate as the Openness Economy. Besides this no previous literature is found to confirm a significant
influence on takeover premiums. Further results show that the GDP Growth rate and the Openness
Economy both have a significant negative effect on the size of takeover premiums. Meaning that when an
economy is doing well (the GDP is growing), takeover premiums would be smaller. This could be
explained that in an economy that is doing well, there is less market undervaluation resulting in smaller
takeover premiums. A possible explanation for the negative influence of the variable Openness Economy
on takeover premiums is that when an economy is more open, the competition in the market would also
be higher, this due to more import or export. In this case it is harder to make profits and acquirers are less
willing to pay the takeover premium. However, as there is no previous literature to confirm the negative
influence of both the GDP and the Openness Economy on takeover premiums, future research concerning
this relationship could give more weight to conclusions given above.
- 37 -
6. CONCLUSION
This paper has provided empirical research on the impact of a financial crisis on M&A deals. The results
from the different datasets with their explaining variables contribute to the existing academic literature.
Managers may benefit from the outcomes as it provides insight on how a financial crisis has an impact on
M&A deals. In this way the paper is useful from an academic point of view as well as from a practical
point of view.
In order to answer the main research question, five hypotheses are stated and four of them are
tested by developed models including several variables. The first hypothesis is supported as it is found
that a crisis has a significant negative effect on the number of M&A deals closed. Fear and insecurity,
caused by the financial crisis, has a negative effect on M&A deals (Duett et al., 2010). Furthermore, when
the top 500 US companies are doing a good job, stated as the S&P Closing Data, more M&A deals are
closed. This is in accordance with previous literature (Kamaly, 2007). The second hypothesis states that a
financial crisis has a significant relationship with changing motives behind an M&A deal. This hypothesis
however could not be tested as there was no data about motives. However, previous literature would
suggest that when there is an economic shock, M&A transactions would take place as a reaction to it
(Mitchell and Mulherin, 1996). Normally motives for M&A deals are motives like market expansion or
using managerial capacity. However, when an economic shock takes place companies are trying to
‘survive’, strengthen or maintain their firm through M&A activity, even though there is no necessarily
improved performance after such an M&A transaction. Taking previous literature into account, it
carefully can be said that a financial crisis does change motives behind M&A deals.
The third hypothesis is supported, as results show that M&A deals are financed differently during
a financial crisis, with less M&A deals paid with shares and more M&A deals paid with cash.
Undervaluation of shares makes managers decide to pay with cash (Masson, 2010). Further results show
that when an economy is growing (GDP growth rate), the number of M&A deals paid with cash grows.
Banks are more willing to lend money in times when the economy is growing, and thus cash financing
would more easily. The fourth hypothesis needs to be rejected as no significant relation between a
financial crisis and the number of successful M&A deals could be found. Although a relation was
expected, this research did not find it. Target size did have a significant negative relation with the number
of successful M&A deals. However because of the coefficient of 0.000, it was not that informative.
Previous literature had found the same negative relation (Zollo and Leshchinkskii, 2000). Furthermore,
- 38 -
the method of payment influenced the successfulness of an M&A deal. Deals paid with cash resulted in
more successful M&A deals (Becher, 1999).
Lastly, hypothesis five is supported; results show that takeover premiums are significant positive related
to a financial crisis. Imperfections in the capital market, with undervaluation in recessions, results in
higher takeover premiums (Nathan and O’Keefe, 1989). Other results show that when an economy is
growing (GDP Growth rate), the size of takeover premiums decreases. Smaller market undervaluation
would explain this behavior. Besides this the more open an economy, is the smaller the takeover
premium. Higher competition and fewer chances on the market could result in less willingness to pay the
takeover premium.
The impact of a financial crisis on M&A deals is described in this paper; the several conclusions
to the sub research questions have been given. However, every research has its limitations and further
research could give more weight to the conclusions given above. The dataset used in this research ranged
from 2000 till 2010, besides this it focused primarily on the financial crisis known as the credit crunch.
For further research more or other financial crises and maybe a longer timespan for the dataset could be
taken. Besides this the variables that are currently in the different developed models are from the
literature, however a lot more variables/reasons are given in the literature. Due to time and data
constraints not all the material described in the literature is used in this research. Further research
however could extend these variables or use different variables to gain more knowledge on the topic.
Furthermore, this research has some other limitations as hypotheses two could not be tested, as
there was no data from databases about the motives behind M&A deals. Further research could maybe
collect this data through qualitative data gathering, interviews for example. Another remarkable note was
that no significant relation was found between a financial crisis and the number of successful M&A deals.
Perhaps future research could use a different method then using the announcement effect. Lastly, after
some research, it can be stated that there is not a whole lot written about M&A deals during a financial
crisis, which makes this research innovating but it also makes it vulnerable. More research is needed to
give more weight to the conclusions given above.
- 39 -
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APPENDICES
Table A1: Pearson Correlation Dataset 1
Number of GDP Growth S&P Closing Openness Tax Regime Tax Regime
Crisis
Deals Rate Data Economy 2001 2003
Number of Deals 1 -.221* .106 .493** .188* -.258** .083
* ** ** **
Crisis -.221 1 -.355 -.076 .610 .263 .459**
GDP Growth Rate .106 -.355** 1 .250** -.252** -.060 -.029
** ** ** **
S&P Closing Data .493 -.076 .250 1 .470 -.386 .076
Openness Economy .188* .610** -.252** .470** 1 .174* .619**
Tax Regime 2001 -.258** .263** -.060 -.386** .174* 1 .573**
Tax Regime 2003 .083 .459** -.029 .076 .619** .573** 1
This table shows the correlation between the variables of dataset 1 for the United States over the period 2000-2010.
**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).
Shares Cash Mixed GDP Growth Borrowings Banks

Crisis
(% of total) (% of total) (% of total) Rate growth rate
Shares (% of total) 1 -.602** .051 -.261** .053 .012
** ** ** *
Cash (% of total) -.602 1 -.763 .404 -.191 -.103
** ** **
Mixed (% of total) .051 -.763 1 -.330 .250 .160
** ** ** **
Crisis -.261 .404 -.330 1 -.355 -.293**
GDP Growth Rate .053 -.191* .250** -.355** 1 -.114
**
Borrowings Banks growth rate .012 -.103 .160 -.293 -.114 1
- 44 -
Announcement Method of
Crisis Target Size
Effect Payment
Announcement Effect 1 -.020 -.032 .145**

Crisis -.020 1 -.143** .129*
Target Size -.032 -.143** 1 -.163**
Method of Payment .145** .129* -.163** 1
GDP Growth S&P Closing Openness

Bid Premium Crisis
Rate Data economy
Bid Premium 1 .240** -.434** -.305** -.091

Crisis .240** 1 -.355** -.076 .610**
GDP Growth Rate -.434** -.355** 1 .250** -.252**
S&P Closing Data -.305** -.076 .250** 1 .470**
Openness economy -.091 .610** -.252** .470** 1
This table shows the correlation between the variables of dataset 4 for the United States over the period 2000-2010. **.
Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).
- 45 -
Graph A1: Data Reflection Dataset 1
Graph A1a: Normality Check Graph A1b: Linearity Check
This graph shows a normal probability plot of the standardized residuals.
This graph shows normal probability plot of the standardized

residuals against the regressed dependent variable.
Graph A1c: Heteroscedasticity Check
This graph shows a plot of the standardized residuals against the regressed dependent variable.
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M&A Deals During A Financial Crisis

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M&A Deals During A Financial Crisis

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M&A Deals during a Financial Crisis

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Keywords: Mergers and acquisitions, financial crisis, payment method, abnormal

Andries de Boer | Student number: 1739441 | E-mail: abr214@student.vu.nl | Master Thesis

4. Empirical research .................................................................................................................. 18

Main research question

What is the impact of a financial crisis on M&A deals?

1. Is the number of M&A deals reduced during a financial crisis?

2. What is the main motive for M&A during crises?

3. Are M&A deals financed differently during a financial crisis?

4. Are M&A deals closed during a financial crisis successful?

5. Do takeover premiums change during a financial crisis?

3.1 Determinants of M&A activity

Figure 1: Mergers & Acquisitions and Loans to Enterprises

3.2 Motives behind M&A deals

3.3 Financing M&A deals

3.4 Determinants of M&A success

3.5 Changing takeover premiums

Crisist = 1 if EMPt > µEMP + 2 x σEMP

EMPt ≡ αΔet − βΔrt +γΔit, where

5.1 Results of the empirical research

Graph 1: Normal Probability Plot

Table 1: Regression results Dataset 1

Dataset 1 Dataset 1 (log transformation)

Coeff. t-Stat. Coeff. t-Stat.

Intercept -36125 0.766 -4.174 14.050**

Crisis -30343 -3.172** -0.174 -2.886**

F statistic 10.408** 13.777**

Mean Squared Error 1.19E+09 0.047

Table 2: Regression results Dataset 2

** Significant at 99% confidence level. *Significant at 95%.

Intercept 0.889 24.435**

Crisis -0.179 -3.176**

Mean Squared Error 0.070

Table 3: Regression results Dataset 2

** Significant at 99% confidence level. *Significant at 95%.

Intercept 1.866 778.779**

Crisis 0.056 6.898**

Mean Squared Error 0.000

Table 4: Regression results Dataset 3

' 1' '''#'1 ( #1 ,

** Significant at 99% confidence level. *Significant at 95%.

Intercept -1.126 -1.395

Crisis -0.573 -0.742

Mean Squared Error 41.092

Table 5: Regression results Dataset 4

** Significant at 99% confidence level. *Significant at 95%.

Dataset 4 Dataset 4 (log transformation)

Coeff. t-Stat. Coeff. t-Stat.

Intercept 117.166 6.454** 2.453 12.810**

Crisis 14.201 3.173** 0.184 3.902**

F statistic 13.443** 12.633**

Mean Squared Error 263.368 0.029

5.2 Reflection on the results

BusinessDictionary.com (2011). Definition Acquisition Premium [online] Available at:

Seidel, G.R., (1995). Kritische Erfolgsfaktoren bei Unternehmensübernahmen: Eine Analyse

Shah, A., (2010). Global Financial Crisis. [online] Available at:

Standard & Poors, (2012). [online] Available at: http://www.standardandpoors.com/about-sp/main/en/eu

Stanford University, (n.d.). Durbin-Watson Critical Values. [online] Available at:

Table A2: Pearson Correlation Dataset 2

Shares Cash Mixed GDP Growth Borrowings Banks

Table A3: Pearson Correlation Dataset 3

Crisis -30343 -3.172 -0.174 -2.886

F statistic 10.408 13.777

' 1' '''#'1 ( #1 ,

Intercept 117.166 6.454 2.453 12.810

Crisis 14.201 3.173 0.184 3.902

F statistic 13.443 12.633

Bid Premium 1 .240 -.434 -.305** -.091