Stapled Financing, Value Certification, and Lending Efficiency
49 Pages Posted: 3 Oct 2015
Date Written: July 24, 2015
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: Suggested Citation