Bank Dependence and Bank Financing in Corporate M&A

Sheng Huang (), Ruichang Lu () and Anand Srinivasan ()
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Sheng Huang: China Europe International Business School (CEIBS), Pudong, Shanghai 201206, China
Ruichang Lu: Department of Finance, Guanghua School of Management, Peking University, Beijing 100871, China
Anand Srinivasan: Department of Finance, NUS Business School, National University of Singapore, Singapore 119245

Management Science, 2022, vol. 68, issue 3, 2250-2283

Abstract: We examine the valuation impact of bank-financed mergers and acquisitions (M&As) and the loan contracts used to finance M&A transactions, focusing on the difference between bank-dependent acquirers and other acquirers. We find that bank-financed deals have higher acquirer’s cumulative abnormal returns relative to other cash M&A deals, but this certification effect exists only for bank-dependent acquirers. Despite bank-dependent acquirers being more susceptible to hold-up, banks do not impose higher loan pricing or more stringent nonprice terms on them. After completion of the acquisition, bank-dependent acquirers retain the M&A financing banks for a much larger share of their borrowing needs, suggesting the importance of repeat business for lack of hold-up. Our findings highlight the positive aspects of bank dependence and the importance of implicit contracting for the lack of hold-up in lending markets.

Keywords: bank dependence; M&A; bank financing; creditor monitoring (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:3:p:2250-2283

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