The role of leverage in cross-border mergers and acquisitions

Hu, May and Yang, Jingjing 2016, The role of leverage in cross-border mergers and acquisitions, International review of economics and finance, vol. 43, pp. 170-199, doi: 10.1016/j.iref.2015.10.039.

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Title The role of leverage in cross-border mergers and acquisitions
Author(s) Hu, MayORCID iD for Hu, May
Yang, Jingjing
Journal name International review of economics and finance
Volume number 43
Start page 170
End page 199
Total pages 30
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2016-05
ISSN 1059-0560
Summary We examine the relationship between leverage and cross-border mergers and acquisitions. Using a sample of 85,560 cross-border mergers and acquisitions in 57 countries over the period 1990 to 2010, we find that firms with higher leverage are less likely to acquire foreign targets, whereas firms with lower leverage tend to be targets acquired by foreign firms. These effects are more pronounced in Asian countries than North America. Acquisition premium, the likelihood of all-cash offer and the percentage of cash in the acquisition offer decrease with leverage in cross-border mergers and acquisitions. Foreign targets gain positive abnormal returns in the both short run and long run, while acquirers earn positive abnormal returns in the short-run, but negative returns in the long run. We also find that firms adjust their capital structure after the acquisition by issuing more equity if they were overleveraged, or issuing more debt if they were underleveraged before the acquisition. Our results provide international evidence on how leverage affects managerial decision to acquire foreign targets, payment method and acquisition premium in cross-border mergers and acquisitions. This study shows that the interdependent relationship between investment decision and financing decision exists worldwide.
Language eng
DOI 10.1016/j.iref.2015.10.039
Field of Research 150205 Investment and Risk Management
Socio Economic Objective 900102 Investment Services (excl. Superannuation)
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2016, Elsevier
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Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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