Financial vs. Strategic Buyers

Marc Martos-Vila, Matthew Rhodes-Kropf and Jarrad Harford ()

No 19378, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper introduces the impact of debt misvaluation on merger and acquisition activity. Debt misvaluation helps explain the shifting dominance of financial acquirers (private equity firms) relative to strategic acquirers (operating companies). The effects of overvalued debt might seem limited since both acquirer types and target firms can access the debt markets. However, fundamental differences in governance and project co-insurance between the two types of acquirer interact with debt misvaluation, resulting in variation in how assets are owned that depends on debt market conditions. We find support for our theory in merger data using a novel measure of debt misvaluation.

JEL-codes: G24 G34 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-com and nep-ppm
Note: CF
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Citations: View citations in EconPapers (14)

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