Collateral shocks and M&A decisions

Md. Imran Hossain, Huu Nhan Duong, Md Al Mamun and Paul Docherty

Journal of Corporate Finance, 2023, vol. 82, issue C

Abstract: We find that positive collateral shocks caused by increases in local real estate prices increase firms' propensities to undertake mergers and acquisitions (M&As). This effect is more pronounced for financially constrained and bank-dependent firms. After collateral value appreciation, acquirers issue more bank debt, secured debt, and lines of credit to finance acquisitions and show a preference for cash offer over equity offer to finance M&As. M&As driven by positive collateral shocks create value for acquiring shareholders in the long-run by avoiding overpayments, and generating synergies. Overall, our findings highlight the importance of the collateral channel in affecting the propensity and performance of M&A deals.

Keywords: Collateral; Collateral shocks; Real estate; Borrowing capacity; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G11 G32 G34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000822

DOI: 10.1016/j.jcorpfin.2023.102433

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