Nationality Italian
Year of selection2016
InstitutionUniversità degli Studi di Torino
RiskSocio-economic risks

Type of support

Post-Doctoral Fellowship

Granted amount

50 000 €


2 years

As the main mechanism for consolidation and restructuring within industries, Mergers and Acquisitions (M&A) among firms play a key role in the economy. But since companies must often increase their debt to finance them, they are also a risky business. Mergers can fail to live up to expectations and wind up destroying shareholder value rather than create it, exposing the firm to financial distress and to incurring the associated bankruptcy costs. To investigate how the risks associated with M&A activity impacts the future of firms, Dr. Stefano Sacchetto is developing a state-of-the-art dynamic model of how firms behave when faced with an option to merge. The aim is to provide insights into how to minimise the risks of default and bankruptcy, which in turn affects the industry and the economy as a whole. Additionally, his model will be used to evaluate the impact of regulation policies regarding M&A.

"Merger activity influences firms’ strategic and financing policies. For instance, they can decide to take on more debt to finance valuable merger opportunities, which can lead to higher financial exposure (for instance in leverage ratios and default probabilities)," Dr. Stefano Sacchetto explains. "Or, a firm with low profitability can decide to stay in the industry, and delay declaring bankruptcy, in the hope of finding a potential acquirer". With his approach, Dr. Stefano Sacchetto aims to investigate these important effects of M&A activity on firms' strategic and financing policies. Particularly, the researcher will investigate how firms choose to finance their overall operations and growth, whether using equity or debt, and in what proportion. "The questions I want to answer are : how exactly is the M&A market affected by risks? How does M&A activity in turn affects risk in the economy? And finally, what role do market regulations play in the matter?", he summarizes.

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.