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Financial risk and acquirers' stockholder wealth in mergers and acquisitions

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  • Chen, An-Sing
  • Chu, Hsiang-Hui
  • Hung, Pi-Hsia
  • Cheng, Miao-Sih

Abstract

This study examines the relationship between financial risk and acquirer's stockholder wealth in mergers and acquisitions. Under this detailed methodological framework, our results reveal several new findings which were not observed in extant studies: (1) Acquirers as a group have low financial risk when measured with Altman's Z-score or default risk derived from Black-Scholes-Merton framework. (2) Default risk provides a more powerful measure on the acquirer's successful takeover probabilities than the Z-score valuation. (3) The lower default risk the acquirer has, the higher successful takeover probabilities. (4) Takeovers create value for acquirers with higher default risk.

Suggested Citation

  • Chen, An-Sing & Chu, Hsiang-Hui & Hung, Pi-Hsia & Cheng, Miao-Sih, 2020. "Financial risk and acquirers' stockholder wealth in mergers and acquisitions," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940818300834
    DOI: 10.1016/j.najef.2018.07.016
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    More about this item

    Keywords

    Default risk; M&A; Shareholder wealth; Takeover; Z-score;
    All these keywords.

    JEL classification:

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

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