EconPapers    
Economics at your fingertips  
 

Financing-Motivated Acquisitions

Isil Erel, Yeejin Jang and Michael Weisbach

No 17867, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Managers often claim that an important source of value in acquisitions is the acquiring firm's ability to finance investments for the target firm. This claim implies that targets are financially constrained prior to being acquired and that these constraints are eased following the acquisition. We evaluate the extent to which acquisitions lower financial constraints on a sample of 5,187 European acquisitions occurring between 2001 and 2008. Each of these targets remains a subsidiary of its new parent, so we can observe the target's financial policies following the acquisition. We examine whether these post-acquisition financial policies reflect improved access to capital. We find that the level of cash target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline significantly, while investment significantly increases following the acquisition. These effects are stronger in deals more likely associated with financing improvements. These findings are consistent with the view that easing financial frictions is a source of value that motivates acquisitions.

JEL-codes: G3 G32 G34 L22 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-cfn
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Do Acquisitions Relieve Target Firms’ Financial Constraints? Authors ISIL EREL, YEEJIN JANG, The Journal of Finance Volume 70, Issue 1, pages 289–328, February 2015

Downloads: (external link)
http://www.nber.org/papers/w17867.pdf (application/pdf)

Related works:
Working Paper: Financing-Motivated Acquisitions (2012) Downloads
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:nbr:nberwo:17867

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17867

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-19
Handle: RePEc:nbr:nberwo:17867