Taking No Chances: Lender Monitoring and Corporate Acquisitions

63 Pages Posted: 14 Jan 2020 Last revised: 10 Mar 2021

See all articles by Luca Xianran Lin

Luca Xianran Lin

HEC Montreal - Department of Finance; University of Navarra, IESE Business School

Date Written: January 10, 2021

Abstract

Using mergers between firms' existing lenders as shocks to lead-lender monitoring incentives and bargaining power, I find that intensified lender monitoring significantly reduces treated firms' acquisitions. However, lender mergers reduce shareholder-value-enhancing acquisitions as well as value-destroying ones. Deals that do happen create no additional shareholder value and target cash-rich firms with stable incomes. Lender mergers also reduce leverage, sales/earnings volatility, and earnings management. All results are driven by less bank-dependent firms in which lenders are more subject to managerial discretion. The evidence suggests that lender monitoring mitigates managerial agency costs, yet induces behavior that can be over-conservative for shareholders.

Keywords: Mergers and Acquisitions, Lender Monitoring, Creditor Governance, Bank Mergers

JEL Classification: G21, G30, G34

Suggested Citation

Lin, Luca Xianran, Taking No Chances: Lender Monitoring and Corporate Acquisitions (January 10, 2021). Available at SSRN: https://ssrn.com/abstract=3507617 or http://dx.doi.org/10.2139/ssrn.3507617

Luca Xianran Lin (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

University of Navarra, IESE Business School ( email )

Avenida Pearson, 21
IESE Business School, H-300
Barcelona, Barcelona 08034
Spain

HOME PAGE: http://lucaxlin.com

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