Corporate Partial Acquisitions, Total Firm Valuation and the Effect of Financing Method
JOURNAL OF BANKING AND FINANCE
Posted: 26 Oct 1999
Previous studies on partial acquisitions focusing solely on stockholder wealth report mixed results about the valuation effect of these transactions. By examining the percent and dollar excess returns of the acquiring firm's bondholders and stockholders, this study is able to conclude unambiguously that partial acquisitions are, at best, value neutral. Our analysis indicates that any wealth losssuffered by the firm is completely absorbed by the bondholders. Moreover, by distinguishing between the pure effect of the acquisition (the investment decision) and the effect of the financing method, our findings show that there is a wealth redistribution from bondholders to stockholders associated with the method of financing used. Supporting our expectation, the results strongly indicate a preference structure for bondholders for acquisition financing.
Note: This is a description of the paper and is not the actual abstract.
JEL Classification: G34
Suggested Citation: Suggested Citation