Do bidders pay cash for underleveraged targets?

Magnus Blomkvist, Karl Felixson, Anders Löflund

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The relationship between acquirer capital structure and the payment choice in acquisitions is well documented. However, the target firm's capital structure has been overlooked. We find that acquisitions of underleveraged targets are more likely to be financed by cash than by equity. A 1% increase of the target firm's deviation from normal leverage decreases the proportion of cash used by 0.76%. We conclude that target firm capital structure is important for the choice of payment.
Original languageEnglish
Peer-reviewed scientific journalEconomics Bulletin
Volume39
Issue number1
Pages (from-to)547-553
Number of pages7
ISSN1545-2921
Publication statusPublished - 16.03.2019
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management

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