How do stronger creditor rights impact corporate acquisition activity and quality?

Megan Rainville, Emre Unlu and Juan Julie Wu

Journal of Banking & Finance, 2022, vol. 144, issue C

Abstract: We exploit a quasi-natural experiment (the adoption of state anti-recharacterization laws) to study the effect of strengthened creditor rights on corporate mergers and acquisitions. We find that, following the passage of anti-recharacterization laws, firms decrease overall acquisition activities. This effect is stronger for firms with worse agency problems. Announcement returns to shareholders are larger and post-merger operating cash flows are better for acquirers with weaker governance. Furthermore, returns to bondholders of these firms are also higher, indicating no wealth transfers. Taken together, our evidence suggests that ex-ante strengthened creditor rights can discipline firm managers to reduce value-destroying acquisitions and conduct higher quality deals.

Keywords: Creditor rights; Mergers and acquisitions; Anti-recharacterization laws; Bankruptcy; Corporate governance; Wealth transfers (search for similar items in EconPapers)
JEL-codes: G21 G33 G34 K22 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:144:y:2022:i:c:s0378426622002059

DOI: 10.1016/j.jbankfin.2022.106625

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