Post-Merger Integration Duration and Leverage Dynamics of Mergers: Theory and Evidence

65 Pages Posted: 17 Mar 2011 Last revised: 9 Apr 2015

See all articles by Jing Huang

Jing Huang

University of South Carolina

Joshua R. Pierce

University of Alabama Culverhouse College of Commerce

Sergey Tsyplakov

University of South Carolina - Darla Moore School of Business

Date Written: April 6, 2015

Abstract

We introduce the concept of the post-merger integration duration (PMID) which is the time delay that it takes a merged entity to fully capture synergistic gains. Using a dynamic model, we examine the effects of this duration on acquiring firms’ financing behavior around mergers. When facing a longer PMID, acquiring firms optimally choose lower leverage prior to and at the time of a merger, and gradually levers up as the integration period nears completion. We hand collect a unique data set on the integration duration of mergers and provide strong empirical support for the model implications.

Keywords: Capital Structure, Merger, Acquisition, Firm Financial Structure, Financing Policy, Leverage

JEL Classification: G32, G34

Suggested Citation

Huang, Jing and Pierce, Joshua R. and Tsyplakov, Sergey, Post-Merger Integration Duration and Leverage Dynamics of Mergers: Theory and Evidence (April 6, 2015). Available at SSRN: https://ssrn.com/abstract=1787265 or http://dx.doi.org/10.2139/ssrn.1787265

Jing Huang

University of South Carolina ( email )

Francis M. Hipp Building
1705 College Street
Columbia, SC South Carolina 29208
United States
803-556-9674 (Phone)

Joshua R. Pierce (Contact Author)

University of Alabama Culverhouse College of Commerce ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Sergey Tsyplakov

University of South Carolina - Darla Moore School of Business ( email )

Francis M. Hipp Building
Finance Department
Columbia, SC 29208
United States
803-777-4669 (Phone)
803-777-6876 (Fax)

HOME PAGE: http://dmsweb.moore.sc.edu/tsyplakov/

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