Stapled Financing, Value Certification, and Lending Efficiency

49 Pages Posted: 3 Oct 2015

See all articles by Hadiye Aslan

Hadiye Aslan

Georgia State University - Department of Finance

Praveen Kumar

University of Houston - Department of Finance

Date Written: July 24, 2015

Abstract

We examine whether financing commitments from a target firm's financial advisor, in the form of stapled financing, provide certification of target value. Using a dataset of leveraged buyouts spanning 2002-2011, and addressing endogeneity issues, we find that stapled financing has significantly positive effects on sellers' shareholder wealth, especially for targets suffering from greater adverse selection. Stapled financing facilitates deal financing by allowing buyers to obtain lower cost and longer maturity debt, and is positively associated with bidding intensity. Investment banks offering stapled financing appear to trade off higher expected advisory fees against loss of lending efficiency ex-post.

Keywords: Stapled finance, Value Certification, Lending Efficiency, Advisory fees

JEL Classification: G34, G24, G14

Suggested Citation

Aslan, Hadiye and Kumar, Praveen, Stapled Financing, Value Certification, and Lending Efficiency (July 24, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2668675

Hadiye Aslan (Contact Author)

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Praveen Kumar

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4770 (Phone)
713-743-4789 (Fax)

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