Merger activity is likely to heat up when interest rates are high because target firms can expect to receive an especially high premium over the pre-announcement stock price.

Question

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Merger activity is actually more likely to heat up when interest rates are low because borrowing costs for acquiring companies are lower, making it easier and cheaper for them to finance the acquisition. When interest rates are high, borrowing costs are higher, which could decrease the number of potential acquirers and reduce the premium paid to target firms.

Merger Activity Is Likely to Heat Up When Interest Rates