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Cash-rich acquirers do not always make bad acquisitions: New evidence

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  • Gao, Ning
  • Mohamed, Abdulkadir

Abstract

Cash-rich acquirers on average perform better than their cash-poor counterparts. This observation is driven by financially constrained acquirers and by the deals made between the 1990s and 2000s. It is robust to alternative measures of financial constraints, to both the short term and the long term, and to the different institutional setting such as the U.K. We conclude cash richness primarily reflects acquirer managers' private information of deal quality instead of agency costs. The precautionary motive can explain the positive cash holdings effect on acquirer performance.

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  • Gao, Ning & Mohamed, Abdulkadir, 2018. "Cash-rich acquirers do not always make bad acquisitions: New evidence," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 243-264.
  • Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:243-264
    DOI: 10.1016/j.jcorpfin.2018.04.002
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    More about this item

    Keywords

    Cash holdings; Financial constraints; Acquirer performance; Mergers and acquisitions; Financial slack;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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