Does Threat of Takeover Affect Default Risk?

58 Pages Posted: 12 Mar 2019 Last revised: 13 Jun 2019

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Tony van Zijl

Victoria University of Wellington - Faculty of Commerce and Administration

Arfian Zudana

Victoria University of Wellington

Date Written: June 12, 2019

Abstract

We find that the threat of takeover has a negative relation with default risk. The result is robust to alternative estimation methods, different measures of default, exclusion of the financial crisis period and over a number of sub-periods. We identify improvement in performance and earnings quality in response to the threat of takeover as channels underlying our main result. We find that the threat of takeover on default risk is more pronounced for firms with low information asymmetry and institutional ownership. Our findings provide important insights for the market for corporate control as a disciplining mechanism in reducing default risk.

Keywords: Takeover Market, Default Risk, Information Asymmetry, Corporate Governance, Earnings Quality

JEL Classification: G34, G38, M41, M48

Suggested Citation

Balachandran, Balasingham and Duong, Huu Nhan and van Zijl, Tony and Zudana, Arfian, Does Threat of Takeover Affect Default Risk? (June 12, 2019). Available at SSRN: https://ssrn.com/abstract=3332740 or http://dx.doi.org/10.2139/ssrn.3332740

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Tony Van Zijl

Victoria University of Wellington - Faculty of Commerce and Administration ( email )

RH 606, Pipitea Campus, 6th Floor, Rutherford Hous
23 Lambton Quay
Wellington
Australia

Arfian Zudana

Victoria University of Wellington ( email )

Wellington
New Zealand

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