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The Corporate Acquisition Policy of Financially Distressed Firms

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  • Dror Parnes

Abstract

The paper examines a unique motive for corporate acquisitions among distressed firms: the desire to enhance creditworthiness by both the acquirer and the acquired firms. I develop a theoretical model of the creditworthiness conditions necessary for corporate acquisitions and identify the optimal policy in searching for an acquirer. I distinguish between strategic and nonstrategic acquisitions and find the necessary conditions and most favorable policy for a strategic acquisition to evolve. I demonstrate the importance of the cost of finding an acquirer, the impact of sharing bargaining leverage, and the economic significance of credit quality for the success of the accord.

Suggested Citation

  • Dror Parnes, 2009. "The Corporate Acquisition Policy of Financially Distressed Firms," The Financial Review, Eastern Finance Association, vol. 44(4), pages 603-623, November.
    • Handle: RePEc:bla:finrev:v:44:y:2009:i:4:p:603-623
    DOI: 10.1111/j.1540-6288.2009.00232.x
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    Cited by:

    1. Kien Cao & Jeff Madura, 2011. "Determinants of the Method of Payment in Asset Sell‐Off Transactions," The Financial Review, Eastern Finance Association, vol. 46(4), pages 643-670, November.
    2. Nejadmalayeri, Ali & Rosenblum, Aaron, 2022. "Distressed acquirers and the bright side of financial distress," International Review of Financial Analysis, Elsevier, vol. 83(C).

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