Corporate Acquisitions and Financial Constraints

44 Pages Posted: 9 Apr 2013 Last revised: 16 Apr 2015

See all articles by Hossein Khatami

Hossein Khatami

University of Manchester - Manchester Business School

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School

Roberto Mura

University of Manchester - Manchester Business School

Date Written: April 15, 2015

Abstract

Using a large sample of US acquisitions made between 1985 and 2013, we study the effect of financial constraints on acquisition gains and acquisition likelihood. Our findings show that financial constraints of target companies significantly increase acquisition premiums and abnormal returns for both parties. Our results further show that the presence of financial constraints in the target is one of the most important determinants of a takeover bid. This supports the idea that acquisitions may improve the ability of financially constrained companies to access capital through a better reallocation of resources within segments of the same company (e.g., internal capital market) or through better access to external markets. This would eventually benefit bidders too, as new capital would be invested in valuable growth opportunities that otherwise would expire unexercised.

Keywords: financial constraints, M&A, acquisition likelihood

JEL Classification: G32, G34

Suggested Citation

Khatami, Seyed Hossein and Marchica, Maria‐Teresa and Mura, Roberto, Corporate Acquisitions and Financial Constraints (April 15, 2015). Available at SSRN: https://ssrn.com/abstract=2246644 or http://dx.doi.org/10.2139/ssrn.2246644

Seyed Hossein Khatami

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom
+44791262959 (Phone)

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Roberto Mura (Contact Author)

University of Manchester - Manchester Business School ( email )

Crawford House
Oxford Road
Manchester, Lancashire M13 9PL
United Kingdom
+44 (0) 161 275 4023 (Fax)

HOME PAGE: http://www.robertomura.com

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