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Unlocking the mergers and acquisitions puzzle in the United Arab Emirates: Investigating the impact of corporate leverage on target selection and payment methods

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  • Moataz Elmassri
  • Tariq Z Elrazaz
  • Yousry Ahmed

Abstract

Following a long stream of literature on the drivers of Mergers and Acquisition (M&A) activities, this study examines the effect of corporate leverage on several decisions of M&A deals in the context of the United Arab Emirates (UAE). Using M&A data from the Thomson One database for the period between 2005 and 2022, we find that corporate leverage significantly influences the type of M&A target. This study further adds to the prior literature on the contradictory behaviours of high and low leverage firms by examining whether acquisition decisions differ amongst them in M&A deals in the UAE context. Results indicate that high (low) leverage firms are less (more) likely to acquire private targets and more (less) inclined to acquire a target from a different (same) industry. Furthermore, our results show that the relationship between the method of payment used in M&A deals and corporate leverage is insignificant. We control for endogeneity using Heckman’s two-stage method. In brief, this paper extends the literature with conclusive evidence that considerations of capital structure can significantly anticipate and explain firms’ behaviour toward M&A choices. The implication of findings may include a call to reform some aspects of the Competition Law in the UAE by requiring private firms to enhance their disclosure practices similar to their public counterparts.

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  • Moataz Elmassri & Tariq Z Elrazaz & Yousry Ahmed, 2024. "Unlocking the mergers and acquisitions puzzle in the United Arab Emirates: Investigating the impact of corporate leverage on target selection and payment methods," PLOS ONE, Public Library of Science, vol. 19(3), pages 1-16, March.
    • Handle: RePEc:plo:pone00:0299717
    DOI: 10.1371/journal.pone.0299717
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