When Credit Dries Up: The Role of M&As in Financially Constrained Firms During Banking Crises

Abstract

This paper examines how firms respond to adverse credit supply conditions during banking crises. While prior studies document declines in investment during banking crises, less is known about the role of corporate transactions in mitigating financing frictions. This paper explores whether mergers and acquisitions (M&A) serve as a channel through which firms respond to constrained credit conditions. Using a global sample of M&A transactions from 1990 to 2019, we examine whether firms with higher refinancing needs—proxied by the share of longterm debt maturing during crisis years—are more likely to become acquisition targets. Employing a difference-in-differences framework, we find that firms with greater maturity exposure are more likely to be acquired during banking crises. Post-acquisition, these firms increase investment and long-term debt issuance relative to comparable non-target firms, without a corresponding change in equity issuance. We also document a reallocation of debt issuance activity toward cross-border markets in financially developed countries. These findings position M&A as a strategic response to credit supply shocks and highlight the role of global financial markets in reallocating funding to constrained firms when domestic credit conditions deteriorate.

Keywords: M&A, Banking Crises, Financial Constraints, Liquidity, Credit Supply Shocks