Cash-Rich Acquirers Do Not Always Make Bad Acquisitions: New Evidence

60 Pages Posted: 8 Feb 2016 Last revised: 21 Apr 2018

See all articles by Ning Gao

Ning Gao

Manchester Accounting and Finance Group, Alliance Manchester Business School, University of Manchester

Abdul Mohamed

Cranfield University - School of Management

Date Written: march 1, 2018

Abstract

Cash-rich acquirers on average perform better than their cash-poor counterparts. This observation is driven by financially constrained acquirers and by the deals made between the 1990s and 2000s. It is robust to alternative measures of financial constraints, to both the short term and the long term, and to the different institutional setting such as the U.K. We conclude cash richness primarily reflects acquirer managers’ private information of deal quality instead of agency costs. The precautionary motive can explain the positive cash holdings effect on acquirer performance.

Keywords: cash holdings; financial constraints; acquirer performance; mergers and acquisitions; financial slack

JEL Classification: G34, G30

Suggested Citation

Gao, Ning and Mohamed, Abdul, Cash-Rich Acquirers Do Not Always Make Bad Acquisitions: New Evidence (march 1, 2018). Available at SSRN: https://ssrn.com/abstract=2728406 or http://dx.doi.org/10.2139/ssrn.2728406

Ning Gao (Contact Author)

Manchester Accounting and Finance Group, Alliance Manchester Business School, University of Manchester ( email )

Booth Street East
.
Manchester, M13 9SS
United Kingdom

HOME PAGE: http://www.research.manchester.ac.uk/portal/Ning.Gao.html

Abdul Mohamed

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

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