The Performance of Acquisitions by High Default Risk Bidders

56 Pages Posted: 25 Jan 2019

See all articles by Evy Bruyland

Evy Bruyland

Ghent University-Universiteit Gent; Vlerick Business School

Meziane Lasfer

Cass Business School, City, University of London

Wouter De Maeseneire

Vlerick Business School; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Wei Song

Swansea University - School of Management

Date Written: January 22, 2019

Abstract

We investigate the takeover strategies of high default risk acquirers and their value impact. We find that these bidders select bigger, less profitable and unrelated targets, pursue transactions during recessions, and pay with shares by offering target shareholders high premiums. Their long-term buy-and-hold returns are extremely negative, and reflect fundamentally their substantial drop in profitability combined with high leverage. We show that the well-established long-run underperformance of acquiring firms is largely driven by this sub-set of acquirers. The results are similar when we use alternative measures of default risk and performance, and a global sample of non-US bidders.

Keywords: Mergers and Acquisitions, High Default Risk Bidders, Long-Term Performance, Short-Term Market Reaction, Agency Conflicts, Distress

JEL Classification: G32, G33, G34

Suggested Citation

Bruyland, Evy and Lasfer, Meziane and De Maeseneire, Wouter and Song, Wei, The Performance of Acquisitions by High Default Risk Bidders (January 22, 2019). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3320671

Evy Bruyland

Ghent University-Universiteit Gent ( email )

Kuiperskaai 55E
Ghent, BE-9000
Belgium

Vlerick Business School ( email )

Reep 1
Ghent, BE-9000
Belgium

Meziane Lasfer (Contact Author)

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain
+44 20 7040 8634 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/m.a.lasfer/

Wouter De Maeseneire

Vlerick Business School ( email )

Reep 1
Ghent
BE-9000 Ghent
Belgium

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Wei Song

Swansea University - School of Management ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

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