Lender Effects on Gains from Mergers and Acquisitions
59 Pages Posted: 30 Oct 2019
Date Written: October 10, 2019
This paper employs a new approach to identify merger and acquisition (M&A) transactions financed by syndicated loans and provides evidence that acquirer announcement returns are higher in loan-financed M&A deals than in other deals. Utilizing an instrumental variable approach and a quasi-natural experiment, we provide evidence that lenders contribute to the higher acquirer announcement returns in loan-financed M&A deals. Lenders’ performance in M&A financing is persistent over time. Lenders’ participation in the M&A market can resolve uncertainty about the M&A deal quality, improve corporate governance by preventing value-destroying M&A transactions, and provide long-term monitoring benefits to acquirer shareholders.
Keywords: M&As, syndicated loan, corporate governance, lending relationship, uncertainty resolution, lender ability, FAS 166/167
JEL Classification: G14, G34, G21, D82
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