Advanced Search
MyIDEAS: Login to save this paper or follow this series

Debt, Information Acquisition, and the Takeover Threat

Contents:

Author Info

  • Arturo Bris
Registered author(s):

    Abstract

    In this paper we formalize the information acquisition process by a potential bidder and its relationship with the target firm's capital structure. We show that debt increases prior to an acquisition are negatively related to the precision of the bidder's information. Incumbent managers, by means of leverage, offset shareholders' losses derived from information acquisition about the firm's prospects by potential acquirors. This explanation for the use of capital structure to deter rivals for control complements the ones provided by the literature. We test our model with a sample of 739 U.S. targets of hostile tender offers, and show that informational variables (such as toehold size and nature of target and bidder industries) are significant determinants of the decision to adjust leverage. The paper shows that target firms display slightly higher debt levels than their industry peers, and that target firms significantly reduce leverage in the year prior to the tender offer announcement. The latter result indicates t

    Download Info

    If 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.
    File URL: http://icfpub.som.yale.edu/publications/2366
    Download Restriction: no

    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm110.

    as in new window
    Length:
    Date of creation: 01 Jan 1999
    Date of revision: 01 Aug 2000
    Handle: RePEc:ysm:somwrk:ysm110

    Contact details of provider:
    Web page: http://icf.som.yale.edu/
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
    2. Dennis, Debra K. & McConnell, John J., 1986. "Corporate mergers and security returns," Journal of Financial Economics, Elsevier, vol. 16(2), pages 143-187, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:ysm110. See general 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: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.