Can Firms Loosen Financial Constraints?

42 Pages Posted: 4 Oct 2013

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: April 2013

Abstract

This paper studies the ability of firms to impact its own financial constraint status. First, we study the persistence of firms’ financial constraint status and show that this changes across time. Next, we find that diversified firms are less financially constrained than single segment firms. Additionally, among diversified firms, those that are more concentrated in their main industries are more constrained than those that are less concentrated. This leads us to examine the ability of firms to ease financial constraints through acquisitions. The results show that aquirers that are relatively more constrained become less constrained following an acquisition. Acquiring a target in the same industries hinders this loosening of financial constraints. Furthermore, the reduction in financial constraint status increases with the difference between acquirer and target financial constraint status in the pre-acquisition period. The results are robust to several measures of financial constraints.

Keywords: financing constraints, acquisitions, diversification

Suggested Citation

Williamson, Rohan G. and Yang, Jie, Can Firms Loosen Financial Constraints? (April 2013). Georgetown McDonough School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2336022 or http://dx.doi.org/10.2139/ssrn.2336022

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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