Financial Constraints and Long-Term Performance of Acquirers

42 Pages Posted: 22 Jan 2013  

Tae-Nyun Kim

The College of New Jersey

Date Written: January 14, 2013

Abstract

This paper shows an empirical evidence that the level of financial constraints for target and acquiring firms in an M&A deal has a significant impact on wealth gains by the acquiring firm in long-term. If both target and acquiring firms are financially unconstrained, thus have low financing costs, investors believe that the level of M&A synergy for them is low in long-term since they do not have a high level of incentives to pool resources to reduce financing cost. On the other hand, long-term gain for acquiring firms’ shareholders is positive and significantly higher than for the other deals if both target and acquiring firms are financially constrained, since they can reduce financing costs by pooling their resources. This positive average long-term abnormal return for the constrained pairs of acquirer and target can be partially explained by industry diversification, impact of institutional ownership, and the level of corporate governance for the acquirer.

Keywords: mergers and acquisitions, long-term performance, financial constraints

JEL Classification: G30, G34

Suggested Citation

Kim, Tae-Nyun, Financial Constraints and Long-Term Performance of Acquirers (January 14, 2013). Available at SSRN: https://ssrn.com/abstract=2204677 or http://dx.doi.org/10.2139/ssrn.2204677

Tae-Nyun Kim (Contact Author)

The College of New Jersey ( email )

Ewing, NJ 08628-0718
United States

Paper statistics

Downloads
68
Rank
213,935
Abstract Views
368