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Corporate acquisitions and financial constraints

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  • Khatami, Seyed Hossein
  • Marchica, Maria-Teresa
  • Mura, Roberto

Abstract

Using a large sample of US acquisitions made between 1985 and 2013, we study the effect of financial constraints on acquisition gains and acquisition likelihood. Our findings show that financial constraints of target companies significantly increase acquisition premiums and abnormal returns for both parties. Our results further show that the presence of financial constraints in the target is one of the most important determinants of a takeover bid. This supports the idea that acquisitions may improve the ability of financially constrained companies to access capital through a better reallocation of resources within segments of the same company (e.g., internal capital market) or through better access to external markets. This would eventually benefit bidders too, as new capital would be invested in valuable growth opportunities that otherwise would expire unexercised.

Suggested Citation

  • Khatami, Seyed Hossein & Marchica, Maria-Teresa & Mura, Roberto, 2015. "Corporate acquisitions and financial constraints," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 107-121.
  • Handle: RePEc:eee:finana:v:40:y:2015:i:c:p:107-121
    DOI: 10.1016/j.irfa.2015.05.007
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    Cited by:

    1. Jeremiah Harris & Ralph Siebert, 2015. "Driven by the Discount Factor: Impact of Mergers on Market Performance in the Semiconductor Industry," CESifo Working Paper Series 5199, CESifo Group Munich.
    2. repec:eee:finana:v:54:y:2017:i:c:p:144-158 is not listed on IDEAS
    3. repec:eee:indorg:v:53:y:2017:i:c:p:32-62 is not listed on IDEAS

    More about this item

    Keywords

    Financial constraints; M&A; Acquisition likelihood;

    JEL classification:

    • 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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