Acquisitions of Financially Distressed Firms: An Empirical Analysis

Posted: 20 Jan 2012

See all articles by Qianqian Huang

Qianqian Huang

City University of Hong Kong

Feng Jiang

University at Buffalo - School of Management

Date Written: September 15, 2010

Abstract

Acquisitions of financially distressed firms are usually associated with debt restructuring of the target debt, and the deals can be implemented with or without the aid of the bankruptcy court. We find target stakeholders generally prefer to complete the acquisition without court help, unless the hold-out problem that resides in debt structures would jeopardize a deal outside of Chapter 11. Firms that choose to be acquired within Chapter 11 are found to have more debt contracts outstanding and more public debt. However, we find no evidence that firms with higher operating leases are more likely to be acquired within Chapter 11, suggesting that the potential benefit from lease contract renegotiation is not a major reason for Chapter 11 filings. We also find that target CEOs are more likely to retain their jobs following non-bankruptcy acquisitions or pre-negotiated acquisitions than in post-negotiated acquisitions, consistent with our conjecture that management benefits personally from arranging a sale as a resolution to the financial distress of the firm.

Keywords: Acquisition, Financial Distress, Chapter 11, Debt Structure, Operating Leases

JEL Classification: G20, G33, G34

Suggested Citation

Huang, Qianqian and Jiang, Feng, Acquisitions of Financially Distressed Firms: An Empirical Analysis (September 15, 2010). Available at SSRN: https://ssrn.com/abstract=1988504

Qianqian Huang (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
852-3442-0284 (Fax)

Feng Jiang

University at Buffalo - School of Management ( email )

344 Jacobs Management Center
Buffalo, NY 14260
United States
716-645-3225 (Phone)

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