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Capital Structure and Mergers: Retrospective Evidence from a Natural Experiment

Sumit K Majumdar (majumdar@utdallas.edu), Rabih Moussawi (rabih.moussawi@villanova.edu) and Ulku Yaylacicegi (yaylacicegiu@uncw.edu)
Additional contact information
Rabih Moussawi: Villanova University
Ulku Yaylacicegi: University of North Carolina at Wilmington

Journal of Industry, Competition and Trade, 2018, vol. 18, issue 4, No 2, 449-472

Abstract: Abstract This analysis evaluates the impact of corporate debt in influencing mergers of local exchange companies in the United States telecommunications industry between 1988 and 2001. Firms’ financial structures significantly affect behavior and performance; yet no evidence has shown how firms’ financial structures influence their merger activities. The impact of corporate debt levels on the various mergers that took place during the merger wave in the sector is significantly negative for the first set of mergers carried out, and significantly negative, but with smaller impact, for the second set of mergers. The results support the idea that firms with high debt levels can be monitored carefully, precluding engagement in potentially-risky mergers so as to not engender negative financial outcomes.

Keywords: Competition policy; Corporate debt; Industry consolidation; Leverage; Mergers; Local exchange carriers; Retrospective evaluation; United States telecommunications industry (search for similar items in EconPapers)
JEL-codes: G34 L96 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10842-017-0266-z

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