Board of Governors of the Federal Reserve System (U.S.)
Finance and Economics Discussion Series
Tapping into Financial Synergies : Alleviating Financial Constraints Through Acquisitions
The paper examines whether financially constrained firms are able to use acquisitions to ease their constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquires, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non-acquiring firms. This improvement is more pronounced for diversifying acquisitions and constrained firms that acquire rather than issue equity and retain the proceeds. Following acquisition, constrained acquirers raise more debt and increase investments, consistent with experiencing reductions in financing constraints relative to matched non-acquirers. These improvements are not seen for unconstrained acquirers. Finally, the familiar diversification discount is non- existent for financially constrained acquirers.
Cite this item
Rohan Williamson & Jie Yang, Tapping into Financial Synergies : Alleviating Financial Constraints Through Acquisitions, Board of Governors of the Federal Reserve System (U.S.), Finance and Economics Discussion Series 2018-053, 03 Aug 2018.
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
Keywords: Diversification ; Financing constraints ; Firm structure ; Mergers & acquisitions
This item with handle RePEc:fip:fedgfe:2018-53
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