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Financial versus Strategic Buyers

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  • Martos-Vila, Marc
  • Rhodes-Kropf, Matthew
  • Harford, Jarrad

Abstract

This article introduces the impact of debt misvaluation on merger and acquisition activity. We show the potential for debt misvaluation to help explain the shifting dominance of financial acquirers (private equity firms) relative to strategic acquirers (operating companies). Fundamental differences in governance and project coinsurance between the two types of acquirer would interact with debt misvaluation, resulting in variation in how assets are owned that depends on debt market conditions. We find support for our theory in merger data using a novel measure of debt misvaluation.

Suggested Citation

  • Martos-Vila, Marc & Rhodes-Kropf, Matthew & Harford, Jarrad, 2019. "Financial versus Strategic Buyers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(6), pages 2635-2661, December.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:6:p:2635-2661_12
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    Cited by:

    1. Chiarella, Carlo & Ostinelli, Diego, 2020. "Financial or strategic buyers: Who is at the gate?," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 393-407.
    2. Hege, Ulrich & Lovo, Stefano & Slovin, Myron B. & Sushka, Marie E., 2009. "Asset sales and the role of buyers: strategic buyers versus private equity," MPRA Paper 39549, University Library of Munich, Germany, revised Feb 2012.
    3. Carolina Salva & Xiqian Zhang, 2022. "Financial versus strategic bidders and underpricing as an acquisition motive," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(9-10), pages 1830-1862, October.

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