State-dependent risk and M&A

Chune Young Chung

Applied Economics, 2016, vol. 48, issue 24, 2285-2300

Abstract: During economic contractions, the asset and capital structures of firms are more likely to deviate from their optimal levels. Target firms, in particular, are more susceptible to such deviations. I study how such deviations affect the bidding firms’ acquisition decision. I find that bidders abstain from taking over targets when the debts and growth options of the targets are over their optimal levels. Further, I show that bidders are more likely to pay a low premium for such targets. Both results are pronounced when the aggregate economy has had a bad shock; these results are associated with higher risks because of the excessive levels of debts and growth options. Overall, these results uncover the impact of the targets’ abnormal debts and growth options on the bidders’ acquisitions, contingent on the state of the economy.

Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2015.1117051 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:48:y:2016:i:24:p:2285-2300

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2015.1117051

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().