Economic policy uncertainty in merges and acquisitions: real options analysis
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Ano de publicação
2023
Autor (es)
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Instituição
Universidade Federal do Paraná
Resumo
The Real Options Theory (ROT) framework in relation to the Economic Policy Uncertainty
Index (EPU) requires further empirical reinforcement, especially within the context of investment projects in mergers and acquisitions (M&A). There are still gaps in this theoretical
domain that need to be explored. To contribute to the discussion, this study aims to investigate the impact of EPU on the valuation process of M&A transactions using the Discounted
Cash Flow (DCF) method expanded by Real Options (ROV). To operationalize the evaluation, a model was proposed that involves standardizing the EPU variable and reorganizing
it through Principal Components Analysis (PCA). This approach resulted in the creation
of four non-discretionary scenarios for testing estimation. Additionally, four discretionary
scenarios were generated through 10,000 simulations of possible paths for the EPU variable
using the Geometric Brownian Motion (GBM) process. In the test environment, the results
indicated that the non-discretionary approach, which solely relied on the characteristics of
the PCA-transformed samples and estimation through DCF expanded by ROV, proved suitable for estimating values while considering the EPU volatility. The developed model was
applied to the acquisition of Latinex by M. Dias Branco, and the obtained values closely
aligned with those disclosed by the company in its financial statements. Furthermore, these
values were found to vary based on the level of EPU volatility. The sensitivity tests conducted confirmed the appropriateness of the proposed non-discretionary model for incorporating the EPU volatility. It was concluded that an increase in the EPU volatility level
can lead to higher project values, increased option values, and greater associated risks.
These findings contribute to the understanding of the effects of EPU volatility on M&A
valuations and emphasize the importance of considering economic policy uncertainty in
investment decision-making processes.
Descrição
Citação
Costa, Gilmarques A. (2023). Economic Policy Uncertainty in Mergers and Acquisitions: Real Options Analysis [Master's Dissertation, Federal University of Paraná]. Universidade Federal do Paraná.