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The Performance of Acquisitions by High Default Risk Bidders

Bruyland, E., Lasfer, M. ORCID: 0000-0003-2338-672X, De Maeseneire, W. and Song, W. (2019). The Performance of Acquisitions by High Default Risk Bidders. Journal of Banking and Finance, 101, pp. 37-58. doi: 10.1016/j.jbankfin.2019.01.019

Abstract

We investigate the takeover strategies of high default risk acquirers and their value impact. We find that these bidders select bigger, less profitable and unrelated targets, pursue transactions during recessions, and pay with shares by offering target shareholders high premiums. Their long-term buy-and-hold returns are extremely negative, and reflect fundamentally their substantial drop in profitability combined with high leverage. We show that the well-established long-run underperformance of acquiring firms is largely driven by this sub-set of acquirers. The results are similar when we use alternative measures of default risk and performance, and a global sample of non-US bidders.

Publication Type: Article
Additional Information: © Elsevier 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Mergers and acquisitions; High default risk bidders; Long-term performance; Short-term market reaction; Agency conflicts; Distress
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/21319
[img] Text - Accepted Version
This document is not freely accessible until 1 August 2020 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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