EconPapers    
Economics at your fingertips  
 

Cash Windfalls and Acquisitions

Bastian von Beschwitz ()
Additional contact information
Bastian von Beschwitz: Board of Governors of the Federal Reserve System (U.S.), http://www.federalreserve.gov/econresdata/bastian-von-beschwitz.htm

No 1159, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This article studies the effect of cash windfalls on the acquisition policy of companies. As identification I use a German tax reform that permitted firms to sell their equity stakes tax-free. Companies that could realize a cash windfall by selling equity stakes see an increase in the probability of acquiring another company by 19 percent. I find that these additional acquisitions destroy firm value. Following the tax reform, affected firms experience a decrease of 1.2 percentage points in acquisition announcement returns. These effects are stronger for larger cash windfalls. My findings are consistent with the free cash flow theory.

Keywords: acquisitions; free cash flow theory; overinvestment (search for similar items in EconPapers)
JEL-codes: G30 G31 G34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
Date: 2016-03-02
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.federalreserve.gov/econresdata/ifdp/2016/files/ifdp1159.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/IFDP.2016.1159 DOI (application/pdf)

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:fip:fedgif:1159

Ordering information: This working paper can be ordered from
http://www.federalreserve.gov/pubs/ifdp/order.htm

DOI: IFDP.2016.1159

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ().

 
Page updated 2019-10-16
Handle: RePEc:fip:fedgif:1159