Insight

In the game of money

Researchers evaluate if target firms’ post-acquisition financial policies reflect improved access to capital

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Published 7 years ago on May 25, 2013 Read

Managers claim that an important source of value in acquisitions is the acquiring firm’s ability to finance investments for the target firm. Isil Erel, Yeejin Jang and Michael S Weisbach evaluate if target firms’ post-acquisition financial policies reflect improved access to capital. By looking at a sample of 5,187 European deals from 2001 to 2008, they find a significant fall in the level of cash target firms hold and the sensitivity of cash and investment to cash flow, while investment increases. This acts as a motivating factor and with reduction in financial constraints it could even induce managers to take value-decreasing acquisitions.

 

Title: Do acquisitions relieve target firms’ financial constraints

Source: Social Science Research Network

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