Easing the Squeeze: How Do Acquisitions Relieve Target Firms' Financial Constraints?

38 Pages Posted: 16 Oct 2024 Last revised: 23 Oct 2024

See all articles by Sadok El Ghoul

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Zhaoran Gong

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou

Omrane Guedhami

University of South Carolina - Moore School of Business

Date Written: September 10, 2024

Abstract

Using private firm financial data, we investigate how acquisitions alleviate financial constraints in private firms. We find that targets' internal financing improves after acquisitions because they can retain higher proportions of earnings and borrow interest-free capital from their parent companies. Targets also receive better external financing as they obtain more debt financing with lower interest rates, borrow more trade credit from suppliers, and collect receivables from customers more quickly. Our findings suggest that improvements in both internal and external financing contribute to the reduction in targets' financial constraints.

Keywords: Mergers and acquisitions, Payout policy, Intra-group borrowing, Debt financing

JEL Classification: G32, G34, G35

Suggested Citation

El Ghoul, Sadok and Gong, Zhaoran and Guedhami, Omrane, Easing the Squeeze: How Do Acquisitions Relieve Target Firms' Financial Constraints? (September 10, 2024). Available at SSRN: https://ssrn.com/abstract=4952339 or http://dx.doi.org/10.2139/ssrn.4952339

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Zhaoran Gong

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou ( email )

111 Ren'ai Road
Suzhou Industrial Park
Suzhou, Jiangsu 215123
China

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

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