The Corporate Acquisition Policy of Financially Distressed Firms

Dror Parnes

The Financial Review, 2009, vol. 44, issue 4, 603-623

Abstract: The paper examines a unique motive for corporate acquisitions among distressed firms: the desire to enhance creditworthiness by both the acquirer and the acquired firms. I develop a theoretical model of the creditworthiness conditions necessary for corporate acquisitions and identify the optimal policy in searching for an acquirer. I distinguish between strategic and nonstrategic acquisitions and find the necessary conditions and most favorable policy for a strategic acquisition to evolve. I demonstrate the importance of the cost of finding an acquirer, the impact of sharing bargaining leverage, and the economic significance of credit quality for the success of the accord.

Date: 2009
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https://doi.org/10.1111/j.1540-6288.2009.00232.x

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