Corporate Liquidity, Acquisitions, and Macroeconomic Conditions
Charles A. Dice Center Working Paper No. 2017-13
50 Pages Posted: 3 Jun 2017 Last revised: 27 Aug 2019
Date Written: August 25, 2019
This paper evaluates how the relation between firms’ cash holdings and their acquisition decisions changes over macroeconomic cycles using a sample of 47,615 acquisitions from 36 countries between 1997 and 2014. Higher cash holdings and stronger macroeconomic conditions each increase the likelihood that a firm will make an acquisition. However, larger cash holdings decrease the sensitivity of acquisitions to macroeconomic factors, suggesting that cash holdings lower financing constraints during times when the cost of external finance is high. Announcement day abnormal returns for acquirers follow a consistent pattern: they decrease with acquirer cash holdings and with better macroeconomic conditions.
Keywords: corporate liquidity, financial constraints, acquisitions, financial frictions, macroeconomic conditions
JEL Classification: G31, G34
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