Cash, access to credit, and value creation in M&As
AbstractThe worldwide availability of easy external financing has been an essential driver of recent M&A activity and a growing perception exists that such conditions may have resulted in a large number of non-value increasing transactions. This paper evaluates the interaction between credit conditions, the method of payment and value creation in a sample of European M&A transactions. The contribution of the paper is twofold. First, we analyze to what extent more generous financing conditions lead to deals that were less-likely to be value creating. Second, we estimate a joint model on the likelihood of choosing cash as a method of payment and the amount of value-created by such deals, controlling for the impact of financial conditions. We find that lower corporate bond spreads are correlated with less value creation in M&A deals suggesting that easy financial conditions may have resulted in M&A deals less-likely to generate value. We also find that higher leverage and a better cash-flow position of the target are more likely to result in cash deals and these deals provide higher excess returns to targets although do not generate value for the deal.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0915.
Length: 38 pages
Date of creation: Jul 2009
Date of revision:
Mergers and acquisitions; payment method; credit conditions;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mar�a Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de Espa�a).
If references are entirely missing, you can add them using this form.