Geopolitical risk, Economic policy uncertainty, and M&A: The Swedish Case

Abstract

This thesis examines how economic policy uncertainty (EPU) and geopolitical risk (GPR) relate to merger and acquisition activity among Swedish listed firms over 2000-2024. While prior evidence is drawn almost entirely from large economies, Sweden offers a distinctive setting: a small, open economy in which cross-border transactions constitute the majority of acquisitions. Using probit and negative binomial models on firm-level data, we estimate the association of each uncertainty measure with acquisition propensity and frequency, distinguishing aggregate from cross-border deals. A methodological contribution is a manually constructed Swedish GPR index, built from the article categories of Caldara and Iacoviello’s (2022) methodology so that it can be decomposed into anticipatory threats (GPT) and realized acts (GPA). We find that elevated economic policy uncertainty and geopolitical risk are both associated with reduced M&A activity, with EPU showing the most robust relationship. Decomposing GPR reveals that the effect operates through anticipated threats rather than realized acts. Both forms of uncertainty are more strongly associated with cross-border than aggregate acquisitions. The Swedish index enables the first direct test of Swedish proxied geopolitical risk against Swedish M&A activity, showing that anticipation, not realization, drives the response.