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2025 AOM Annual Meeting

STR

Session: 25529: Strategic Growth, Timing, and Performance Outcomes in M&As

19120: Timing Growth: Analyzing Cyclical and Countercyclical Behavior in M&A Strategies (session 25529)

Monday, July 28, 2025
12:00 - 13:30 CEST (GMT+2)
Location: Bella Center: Hall C- C3-m14
Session Type: Paper Session
Orientation: Research
Shareable link: https://cdmcd.co/5np4Zm
This paper studies how firms respond to the business cycle through merger and acquisition (M&A) activity and the performance implications of procyclical and countercyclical strategies. We argue that firms with lower levels of financial slack, proxied by higher financial leverage, tend to exhibit procyclical M&A behavior, increasing acquisitions during expansion periods and scaling back during downturns. This procyclical behavior may result in weaker performance during the recovery phase. Conversely, firms with higher financial slack (lower financial leverage) are better positioned to pursue countercyclical M&A strategies, acquiring undervalued assets during recessions and achieving superior performance in the subsequent recovery. Using a sample of 2,467 firms from various US industries between 2005-2011, covering three economic stages (expansion, recession, and recovery), we apply a Discontinuous Growth Model (DGM) and Empirical Bayes estimations to test our proposed theoretical arguments. Our findings indicate that while all firms reduce their M&A activity in periods of economic distress, countercyclical firms do so less and can perform better during the recovery phase. These results highlight the role of financial slack in enabling countercyclical behavior and its potential as a source of long-term competitive advantage.

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