Corporate Liquidity, Acquisitions, and Macroeconomic Conditions

Fisher College of Business Working Paper No. 2017-03-13

Charles A. Dice Center Working Paper No. 2017-13

48 Pages Posted: 3 Jun 2017 Last revised: 30 Apr 2019

See all articles by Isil Erel

Isil Erel

Ohio State University (OSU) - Department of Finance

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: March 22, 2019

Abstract

This paper evaluates how the relation between firms’ cash holdings and their acquisition decisions changes over macroeconomic cycles using a sample of 47,378 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

Suggested Citation

Erel, Isil and Jang, Yeejin and Minton, Bernadette A. and Weisbach, Michael S., Corporate Liquidity, Acquisitions, and Macroeconomic Conditions (March 22, 2019). Charles A. Dice Center Working Paper No. 2017-13. Available at SSRN: https://ssrn.com/abstract=2978801 or http://dx.doi.org/10.2139/ssrn.2978801

Isil Erel

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-3125 (Phone)
614-292-2359 (Fax)

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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