 Wealth transfer, signaling and leverage in M&ABenjamin Murray, Jiri Svec and Danika Wright International Review of Financial Analysis, 2017, vol. 52, issue C, 203-212 Abstract: Merger activity amplifies the conflict of interest between a bidder's different classes of security holders. This study examines how equity returns and credit default swap spreads are affected by acquisition-driven changes in firm leverage. We develop an improved proxy for predicted leverage changes which includes transaction financing and find it has a positive relationship with both equity returns and credit spreads. Using data for North American firms that made acquisition announcements between 2008 and 2014, we find that in leverage increasing mergers, bidding firm shareholders gain while bondholders lose. While these results are consistent with the wealth transfer literature we show that the gains to bidders' shareholders and losses to bidders' bondholders are caused by the change in leverage, not the form of payment or its signaling effect as is commonly documented. Keywords: Mergers and acquisitions; Wealth transfer; Signaling; Leverage; Credit default swaps (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:52:y:2017:i:c:p:203-212 DOI: 10.1016/j.irfa.2017.06.002 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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