Acquirers and financial constraints: Theory and evidence from emerging markets

Rahul Mukherjee and Christian Proebsting

Journal of International Money and Finance, 2021, vol. 117, issue C

Abstract: Financial crises in emerging market economies induce diverging patterns of ownership stakes and subsequent divestiture rates among domestic and foreign acquirers. We rationalize these empirical findings in a tractable model where domestic acquirers are subject to borrowing constraints. In contrast to standard fire-sale effects operating for acquisitions by foreign acquirers, acquisition patterns of domestic firms are shaped by a novel counteracting selection effect, resulting in larger acquired stakes and more persistent ownership. We present empirical evidence consistent with the model’s predictions using a large dataset of domestic and cross-border emerging market acquisitions over 1990–2007. The estimated contribution of selection effects is quantitatively significant, leading to 12% increases in stakes, 25% increases in full acquisitions, and 30% declines in divestiture rates among crisis-time domestic acquisitions. Our results demonstrate how financial crises can have both short- and long-run effects through the market for corporate control, by changing the set of acquirers and how long acquirers keep ownership.

Keywords: Domestic mergers and acquisitions; Cross-border mergers and acquisitions; Emerging markets; Financial crisis; Financial constraints; Capital reallocation (search for similar items in EconPapers)
JEL-codes: F21 G01 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Acquirers and Financial Constraints: Theory and Evidence from Emerging Markets (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621000917

DOI: 10.1016/j.jimonfin.2021.102440

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