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What drives corporate minority acquisitions around the world? The case for financial constraints

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  • Liao, Rose C.

Abstract

In this paper, I examine minority block acquisitions from 1990 to 2009, as well as possible theories for the presence of equity stake purchases. I find that target firms are financially constrained. Acquisitions significantly increase their stock prices at announcement, along with their investment expenditures afterwards. In the two years following the acquisition, 27% (9%) issue new equity (debt) and raise 27% (24%) of their market capitalization. These findings support the theory that equity stakes certify the investment opportunities of target firms. I also find some support for the contracting motive, mostly in countries with good investor protection and a well-performing banking sector.

Suggested Citation

  • Liao, Rose C., 2014. "What drives corporate minority acquisitions around the world? The case for financial constraints," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 78-95.
  • Handle: RePEc:eee:corfin:v:26:y:2014:i:c:p:78-95 DOI: 10.1016/j.jcorpfin.2014.02.007
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    1. repec:eee:corfin:v:47:y:2017:i:c:p:174-190 is not listed on IDEAS
    2. repec:eee:riibaf:v:42:y:2017:i:c:p:769-783 is not listed on IDEAS
    3. Ibrahim Bostan & Mariana Spatareanu, 2016. "Financing Innovation through Minority Acquisitions," Working Papers Rutgers University, Newark 2016-002, Department of Economics, Rutgers University, Newark.
    4. Karolyi, G. Andrew & Liao, Rose C., 2017. "State capitalism's global reach: Evidence from foreign acquisitions by state-owned companies," Journal of Corporate Finance, Elsevier, pages 367-391.
    5. Dang, Man & Henry, Darren, 2016. "Partial-control versus full-control acquisitions: Does target corporate governance matter? Evidence from eight East and Southeast Asian countries," Pacific-Basin Finance Journal, Elsevier, pages 251-265.
    6. Borisova, Ginka & Fotak, Veljko & Holland, Kateryna & Megginson, William L., 2015. "Government ownership and the cost of debt: Evidence from government investments in publicly traded firms," Journal of Financial Economics, Elsevier, vol. 118(1), pages 168-191.
    7. repec:eee:jfinec:v:125:y:2017:i:3:p:475-490 is not listed on IDEAS
    8. Kim, Hugh & Liao, Rose C. & Wang, Yan, 2015. "Active block investors and corporate governance around the world," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 181-194.

    More about this item

    Keywords

    Minority acquisitions; Financial constraints; Product market relations; Corporate governance;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • F3 - International Economics - - International Finance

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