Acquisitions of Financially Constrained Targets

Maslinawati Mohamad*, Surendranath Rakesh Jory and Nnamdi Madichie
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Maslinawati Mohamad*: Faculty of Accountancy, University Teknologi MARA, Malaysia
Surendranath Rakesh Jory: Banking and Finance Department, University of Southampton, United Kingdom
Nnamdi Madichie: Centre of Research and Enterprise, London School of Business and Management, United Kingdom

The Journal of Social Sciences Research, 2018, 868-877 Special Issue: 5

Abstract: We examine the extent to which bidders’ stock returns at acquisition announcements reflect the financing needs of the target firm. Using a sample of the United States mergers and acquisitions of a period starts in 1985 and ends in 2012, we find that bidders of financially constrained targets pay lower acquisition premiums and earn higher announcement period cumulative abnormal returns than bidders of unconstrained targets. The lower premium and positive stock market reaction are both sources of value for bidders’ shareholders. Our results contrast the findings of the literature that document an insignificant wealth transfer to bidder shareholders.

Keywords: Acquisition announcement; Firms; Bidders. (search for similar items in EconPapers)
Date: 2018
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