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Bankruptcy Avoidance as a Motive For Merger

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  • Shrieves, Ronald E.
  • Stevens, Donald L.

Abstract

The phenomenal growth in corporate merger activity of the 1960s revived interest in the motives and effects relating to corporate mergers. In recent years, many theories for explaining mergers have been discussed and tested in the literature of finance, law, and economics. Various authors have argued that motives for merger include increased market power [15, 21, 23], achievement of operating or managerial scale economies [2, 8], diversification [6], tax reduction [19], growth maximization [14, 16], and bankruptcy avoidance [7, 10, 12, 13]. The bankruptcy avoidance motive is perhaps the most recently articulated of all merger motives, and perhaps the only one for which no systematic attempts at empirical validation have been forthcoming.

Suggested Citation

  • Shrieves, Ronald E. & Stevens, Donald L., 1979. "Bankruptcy Avoidance as a Motive For Merger," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(3), pages 501-515, September.
    • Handle: RePEc:cup:jfinqa:v:14:y:1979:i:03:p:501-515_00
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    Cited by:

    1. James R. Morris, 1982. "Taxes, Bankruptcy Costs And The Existence Of An Optimal Capital Structure," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(3), pages 285-299, September.
    2. Giulio Bottazzi & Marco Grazzi & Angelo Secchi & Federico Tamagni, 2011. "Financial and economic determinants of firm default," Journal of Evolutionary Economics, Springer, vol. 21(3), pages 373-406, August.
    3. Raphael Amit & Joshua Livnat & Paul Zarowin, 1989. "A classification of mergers and acquisitions by motives: Analysis of market responses," Contemporary Accounting Research, John Wiley & Sons, vol. 6(1), pages 143-158, September.
    4. Balcaen,S. & Buyze, J. & Ooghe,H., 2009. "Financial distress and firm exit: determinants of involuntary exits, voluntary liquidations and restructuring exits," Vlerick Leuven Gent Management School Working Paper Series 2009-21, Vlerick Leuven Gent Management School.
    5. Giulio Bottazzi & Federico Tamagni, 2011. "Big and fragile: when size does not shield from default," Applied Economics Letters, Taylor & Francis Journals, vol. 18(14), pages 1401-1404.
    6. Ronan Powell & Alfred Yawson, 2012. "Internal Restructuring and Firm Survival," International Review of Finance, International Review of Finance Ltd., vol. 12(4), pages 435-467, December.
    7. José Alcalde & María Carmen Marco-Gil & José Silva-Reus, 2014. "The minimal overlap rule: restrictions on mergers for creditors’ consensus," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 22(1), pages 363-383, April.
    8. Powell, Ronan & Yawson, Alfred, 2005. "Industry aspects of takeovers and divestitures: Evidence from the UK," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 3015-3040, December.
    9. Giulio Bottazzi & Federico Tamagni, 2010. "Is Bigger Always Better ? The Effect of Size on Defaults," LEM Papers Series 2010/07, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    10. M. M. Swalih & M. S. Vinod, 2017. "Application Of Altman Z Score on BSE-Greenex Companies," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 6(3), pages 205-215, September.
    11. Zhang, Yahua & Round, David K., 2008. "China's airline deregulation since 1997 and the driving forces behind the 2002 airline consolidations," Journal of Air Transport Management, Elsevier, vol. 14(3), pages 130-142.
    12. fernández, María t. Tascón & gutiérrez, Francisco J. Castaño, 2012. "Variables y Modelos Para La Identificación y Predicción Del Fracaso Empresarial: Revisión de La Investigación Empírica Reciente," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 15(1), pages 7-58.
    13. Fidrmuc, Jana P. & Xia, Chunling, 2019. "M&A deal initiation and managerial motivation," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 320-343.
    14. Giulio Bottazzi & Marco Grazzi & Angelo Secchi & Federico Tamagni, 2011. "Financial and economic determinants of firm default," Journal of Evolutionary Economics, Springer, vol. 21(3), pages 373-406, August.
    15. Ly, Kim Cuong & Liu, Hong & Opong, Kwaku, 2017. "Who acquires whom among stand-alone commercial banks and bank holding company affiliates?," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 144-158.
    16. Gemünden, Hans Georg, 1988. "Defekte der empirischen Insolvenzforschung," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 205, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    17. Musatova, Maria, 2009. "Intensity of Russian Companies’ Mergers & Acquisitions (M&A) Processes, 2001-2004: Econometric Estimation," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 15(3), pages 23-42.
    18. Gudmundsson, Sveinn Vidar & Merkert, Rico & Redondi, Renato, 2020. "Cost structure effects of horizontal airline mergers and acquisitions," Transport Policy, Elsevier, vol. 99(C), pages 136-144.
    19. Kevin C.W. Chen & Chi†Wen Jevons Lee, 1993. "Financial Ratios and Corporate Endurance: A Case of the Oil and Gas Industry," Contemporary Accounting Research, John Wiley & Sons, vol. 9(2), pages 667-694, March.
    20. Ronan Powell & Alfred Yawson, 2007. "Are Corporate Restructuring Events Driven by Common Factors? Implications for Takeover Prediction," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(7‐8), pages 1169-1192, September.
    21. Dong, Feng & Doukas, John, 2021. "The effect of managers on M&As," Journal of Corporate Finance, Elsevier, vol. 68(C).
    22. Chitra Singla, 2019. "Antecedents of Inbound and Outbound M&A: Industry-Level Analysis from India," Management International Review, Springer, vol. 59(5), pages 703-739, October.

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