Tapping into Financial Synergies: Alleviating Financial Constraints Through Acquisitions

Rohan Williamson and Jie Yang
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Jie Yang: https://www.federalreserve.gov/econres/jie-yang.htm

No 2018-053, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The paper examines whether financially constrained firms are able to use acquisitions to ease their constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquires, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non-acquiring firms. This improvement is more pronounced for diversifying acquisitions and constrained firms that acquire rather than issue equity and retain the proceeds. Following acquisition, constrained acquirers raise more debt and increase investments, consistent with experiencing reductions in financing constraints relative to matched non-acquirers. These improvements are not seen for unconstrained acquirers. Finally, the familiar diversification discount is non- existent for financially constrained acquirers.

Keywords: Diversification; Financing constraints; Firm structure; Mergers & acquisitions (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 L25 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2018-08-03
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-53

DOI: 10.17016/FEDS.2018.053

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