Deviation from the Target Capital Structure and Acquisition Choices

49 Pages Posted: 19 Mar 2006 Last revised: 20 Nov 2010

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 2010

Abstract

This study finds that managers take deviations from their target capital structures into account when planning and structuring acquisitions. Specifically, firms that are overleveraged relative to their target debt ratios are less likely to make acquisitions and are less likely to use cash in their offers. Furthermore, they acquire smaller targets and pay lower premiums. Managers of overleveraged firms also actively rebalance their capital structures when they anticipate a high likelihood of making an acquisition. Finally, they pursue the most value-enhancing acquisitions. Collectively, these findings improve our understanding on how firms choose their capital structures and shed light on the interdependence of capital structure and investment decisions in the presence of financial frictions.

Keywords: Mergers and acquisitions, target capital structure, anticipation, financing frictions

JEL Classification: G32, G34

Suggested Citation

Uysal, Vahap B., Deviation from the Target Capital Structure and Acquisition Choices (November 17, 2010). AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=891582 or http://dx.doi.org/10.2139/ssrn.891582

Vahap B. Uysal (Contact Author)

University of Oklahoma ( email )

307 West Brooks
Norman, OK 73019-4004
United States
405-325 5672 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
826
Abstract Views
3,697
rank
23,199
PlumX Metrics