Deakin University
Browse

File(s) under permanent embargo

The role of leverage in cross-border mergers and acquisitions

Version 2 2024-06-06, 11:53
Version 1 2016-01-07, 13:01
journal contribution
posted on 2024-06-06, 11:53 authored by M Hu, J Yang
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.

History

Journal

International review of economics and finance

Volume

43

Pagination

170-199

Location

Amsterdam, The Netherlands

ISSN

1059-0560

Language

eng

Publication classification

C Journal article, C1 Refereed article in a scholarly journal

Copyright notice

2015, Elsevier

Publisher

Elsevier