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Collateral shocks and M&A decisions

Author

Listed:
  • Hossain, Md. Imran
  • Duong, Huu Nhan
  • Al Mamun, Md
  • Docherty, Paul

Abstract

We find that positive collateral shocks caused by increases in local real estate prices increase firms' propensities to undertake mergers and acquisitions (M&As). This effect is more pronounced for financially constrained and bank-dependent firms. After collateral value appreciation, acquirers issue more bank debt, secured debt, and lines of credit to finance acquisitions and show a preference for cash offer over equity offer to finance M&As. M&As driven by positive collateral shocks create value for acquiring shareholders in the long-run by avoiding overpayments, and generating synergies. Overall, our findings highlight the importance of the collateral channel in affecting the propensity and performance of M&A deals.

Suggested Citation

  • Hossain, Md. Imran & Duong, Huu Nhan & Al Mamun, Md & Docherty, Paul, 2023. "Collateral shocks and M&A decisions," Journal of Corporate Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000822
    DOI: 10.1016/j.jcorpfin.2023.102433
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    References listed on IDEAS

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    Cited by:

    1. Liu, Jiming & Liu, Yi & Zhang, Yue & Wu, Kai, 2026. "Riding the wave: How collateral shocks affect corporate financialization," Pacific-Basin Finance Journal, Elsevier, vol. 95(C).
    2. Jérôme Héricourt & Jean Imbs & Lise Patureau, 2024. "The Collateral Channel within and between Countries," Working Papers 2024-13, CEPII research center.
    3. Galloppo, Giuseppe & Guida, Roberto & Paimanova, Viktoriia, 2024. "Mutual fund flows and returns dynamics: Investor preferences and performance persistence," Research in International Business and Finance, Elsevier, vol. 71(C).
    4. Chen, Fengxian & Feng, Wenhua & Dong, Jingyi & Wang, Yuan, 2025. "The sudden stops of international capital flows and corporate financing constraints——An empirical analysis based on global listed companies," Journal of International Money and Finance, Elsevier, vol. 158(C).

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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

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