Understanding the impact of risks on the Merger and Acquisition market

Investigating the impact of risks on M&A activity to provide insight for practitioners and policy makers

To conduct his study, Dr. Stefano Sacchetto will proceed in three steps. First, he will develop the theoretical framework of how firms organise their capital structure and make investment decisions when they have an option to merge. He will then test the validity of the model using data on public companies. Finally, he will conduct experiments on the effects of changes in “factors” of the economic or political environment. "A major advantage of my approach is that it can quantify the effects of a change in factors that are unobservable in the data, but are crucial for the firm’s strategic and financing choices," Dr. Stefano Sacchetto points out. "For instance, take a situation where a technological improvement is accelerating the integration process between two merging firms, consequently increasing productivity. The model will allow measuring the impact of this favorable factor on firms’ investment, leverage, default probabilities, etc.".

By providing a framework to assess the impact of risks on M&A activity, and in turn how risks related to M&A activity affects the economy as a whole, Dr. Stefano Sacchetto's research is not only relevant from a theoretical perspective, but also for practical purposes. His model will be the first to provide insights for companies that want to grow on whether to rely on internal investment or repeated acquisitions, a crucial strategic decision that affects their future on the long-term. The model will also allow evaluation of the effects of different policies aimed to regulate merger activity and firms’ risk exposure, an invaluable tool for policy makers. Additionally, Dr. Stefano Sacchetto's project will be well-adapted to assess the impact of globalisation on M&A activity.