Mergers and Acquisitions and Brexit: A Natural Experiment

Abstract

We study the impact of Brexit uncertainty on one of the most important forms of corporate investment: mergers and acquisitions (M&As). Brexit provides us with an ideal natural experiment to explore the real effects of economic uncertainty and understand the underlying transmission mechanism. We document a significant decline in the number of M&A deals for UK firms after Brexit compared to EU firms. This inhibiting effect is amplified by the channels of real options, foreign trade, and financial constraints. Overall, our results provide for deeper understanding of this unprecedented uncertainty in Brexit policy on local M&A activity. Policy makers are urged to respond.