Acquisitions and Funding Conditions

58 Pages Posted: 12 Aug 2019 Last revised: 24 May 2021

See all articles by David Becher

David Becher

Drexel University

Tyler Jensen

Iowa State University - Ivy College of Business - Department of Finance

Tingting Liu

Iowa State University

Date Written: August 6, 2019


We find evidence that aggregate funding conditions play an instrumental role in mergers and acquisitions (M&A). Funding conditions impact the benefits, participants and the number of deals transacted and this impact extends well beyond merger waves. Specifically, when aggregate funding conditions are favorable, the merger market is especially active and small, financially-constrained firms participate heavily. These same firms, however, are largely absent from the deal market when funding conditions are tight. Furthermore, investors view deals during favorable environments as relatively attractive, particularly if the deals are initiated by small bidders. In contrast, deals transacted by large firms during easy-money periods are viewed as value-destroying. We also document that these value-destroying deals are particularly prevalent among large bidders with significant potential for agency costs. Overall, our results suggest that aggregate funding conditions do not merely cause bidders to adjust the scope of their investment decisions consistent with capital rationing, but rather, the changing state of aggregate funding appears to significantly determine the size and composition of the M&A potential bidder pool.

Keywords: Mergers and acquisitions, Bidder announcement returns, Funding conditions, Capital liquidity

JEL Classification: G34

Suggested Citation

Becher, David and Jensen, Tyler and Liu, Tingting, Acquisitions and Funding Conditions (August 6, 2019). Journal of Corporate Finance, Volume 65, 101760, 2020, Available at SSRN: or

David Becher

Drexel University ( email )

3220 Market Street
1127 Gerri C LeBow Hall
Philadelphia, PA 19104
United States
215-895-2274 (Phone)
215-895-2295 (Fax)

Tyler Jensen (Contact Author)

Iowa State University - Ivy College of Business - Department of Finance ( email )

Ivy College of Business
3230 Gerdin Business Building
Ames, IA 50011-2063
United States

Tingting Liu

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

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