Tapping into Financial Synergies: Alleviating Financial Constraints Through Acquisitions

60 Pages Posted: 9 Apr 2013 Last revised: 7 Nov 2018

See all articles by Rohan Williamson

Rohan Williamson

Georgetown University - McDonough School of Business

Jie Yang

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: November 6, 2018

Abstract

The paper examines whether firms are able to use acquisitions to ease their financial constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquires, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non-acquiring firms. This improvement is more pronounced for diversifying acquisitions and constrained firms that acquire rather than issue equity and retain the proceeds. Following acquisition, constrained acquirers raise more debt and increase investments, consistent with experiencing reductions in financing constraints relative to matched non-acquirers. These improvements are not seen for unconstrained acquirers. Finally, the familiar diversification discount is non- existent for financially constrained acquirers.

Keywords: Financing Constraints, Firm Structure, Diversification, Mergers & Acquisitions

JEL Classification: G30, G32, G34, L25

Suggested Citation

Williamson, Rohan G. and Yang, Jie, Tapping into Financial Synergies: Alleviating Financial Constraints Through Acquisitions (November 6, 2018). Georgetown McDonough School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2247088 or http://dx.doi.org/10.2139/ssrn.2247088

Rohan G. Williamson

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

Jie Yang (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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