Target Financial Independence and Takeover Pricing

63 Pages Posted: 26 May 2012 Last revised: 28 May 2015

See all articles by Jan Jindra

Jan Jindra

Thomas Moeller

Texas Christian University - Neeley School of Business

Date Written: May 26, 2015


In a large sample of U.S. takeovers, we find that acquisitions of targets with greater financial independence are associated with higher takeover premiums and lower acquirer announcement returns. This empirical result is most consistent with targets’ deriving bargaining power from their financial independence. Raising external funds is costly. Targets that do not depend on external funds do not need new external capital and have no reason to acquiesce potential takeover premium to acquirers that can provide capital. Therefore, more financially-independent targets should be in stronger bargaining positions vis à vis potential acquirers, leading to the effect on takeover pricing that we observe.

Keywords: Mergers, acquisitions, financial independence, raising capital, bargaining

JEL Classification: G34

Suggested Citation

Jindra, Jan and Moeller, Thomas, Target Financial Independence and Takeover Pricing (May 26, 2015). Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper, Journal of Financial Research, Forthcoming, Available at SSRN: or

Thomas Moeller (Contact Author)

Texas Christian University - Neeley School of Business ( email )

TCU Box 298530
Fort Worth, TX 76129
United States
817.257.7457 (Phone)


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