Year of Graduation
Impact of M&A Deals on Default Risk of the Merged Company
Financial Markets and Financial Institutions
In this study, the author investigates impact of cross-country mergers and acquisitions on the probability of default of the acquiring company in deals with targets from BRICS countries. In order to calculate the probabilities of default, the author used a Merton model modification – SNM 2016 (Simple Naive Model). Using a data sample of 3.2 thousand cross-country M&A deals the author comes to a conclusion that this type of M&A deals on average increased the probability of default of the acquiring company by 0.2%. Furthermore, the author shows the dynamics of changes in default probability for the whole data sample and for each country separately for 2005-2016. Finally, the author conducts a regression analysis, which shows that the main determinants of changes in default probabilities as a result of the deals are financial leverage and “buy-and-hold” return of the acquiring company’s stock before the deal.