Easing the squeeze: How do acquisitions relieve target firms’ financial constraints?

Sadok El Ghoul, Gong, Zhaoran (Jason) and Omrane Guedhami

Research in International Business and Finance, 2025, vol. 74, issue C

Abstract: Using private firm financial data, we investigate how acquisitions alleviate financial constraints in private firms. We find that targets’ internal financing improves after acquisitions because they can retain higher proportions of earnings and borrow interest-free capital from their parent companies. Targets also receive better external financing as they obtain more debt financing with lower interest rates, borrow more trade credit from suppliers, and collect receivables from customers more quickly. Our findings suggest that internal and external financing improvements contribute to reducing targets’ financial constraints.

Keywords: Financial constraints; Mergers and acquisitions; Payout policy; Intra-group borrowing; Debt financing (search for similar items in EconPapers)
JEL-codes: G32 G34 G35 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:74:y:2025:i:c:s0275531924004665

DOI: 10.1016/j.ribaf.2024.102673

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