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Product Market Competition, Mergers and Acquisitions, and Covenant Redesign

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  • Hadiye Aslan
  • Madhu Kalimipalli
  • Praveen Kumar
  • Buvaneshwaran Venugopal

Abstract

Industry competition shocks are major drivers of mergers and acquisitions (M&A). We document strong positive effects of competition shocks on M&A-related covenant redesign. Acquiring firms in high-competition environments are significantly more likely to undertake tender offer bond repurchases and reduce restrictions on mergers, investments, payouts, and financing, but increase change-in-control covenants. This effect is stronger for larger, more profitable firms. Moreover, announcement returns from M&A transactions of redesigning firms in more competitive settings are significantly higher, while acquisition deal premiums are lower. Our study shows the significant effect of industry competition shocks on debt recontracting in M&A. (JEL G32, G34)

Suggested Citation

  • Hadiye Aslan & Madhu Kalimipalli & Praveen Kumar & Buvaneshwaran Venugopal, 2025. "Product Market Competition, Mergers and Acquisitions, and Covenant Redesign," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 14(3), pages 880-914.
    • Handle: RePEc:oup:rcorpf:v:14:y:2025:i:3:p:880-914.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfae019
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    More about this item

    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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