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Easing the squeeze: How do acquisitions relieve target firms’ financial constraints?

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  • El Ghoul, Sadok
  • Gong, Zhaoran (Jason)
  • Guedhami, Omrane

Abstract

Using private firm financial data, we investigate how acquisitions alleviate financial constraints in private firms. We find that targets’ internal financing improves after acquisitions because they can retain higher proportions of earnings and borrow interest-free capital from their parent companies. Targets also receive better external financing as they obtain more debt financing with lower interest rates, borrow more trade credit from suppliers, and collect receivables from customers more quickly. Our findings suggest that internal and external financing improvements contribute to reducing targets’ financial constraints.

Suggested Citation

  • El Ghoul, Sadok & Gong, Zhaoran (Jason) & Guedhami, Omrane, 2025. "Easing the squeeze: How do acquisitions relieve target firms’ financial constraints?," Research in International Business and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:riibaf:v:74:y:2025:i:c:s0275531924004665
    DOI: 10.1016/j.ribaf.2024.102673
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    More about this item

    Keywords

    Financial constraints; Mergers and acquisitions; Payout policy; Intra-group borrowing; Debt financing;
    All these keywords.

    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
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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