Strategic underleveraging and acquisitions

Magnus Blomkvist, Karl Felixson, Anders Löflund*, Hitesh Vyas

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review


This paper investigates the Morellec and Zhdanov (2008) prediction that firms strategically underleverage to win takeover contests. In line with the MZ commitment hypothesis, we find that greater pre-bid leverage reduction is linked to greater acquisition activity. We document support for three specific MZ model predictions: pre-merger underleveraging increases with (i) bidding competition, (ii) synergies offered by targets and (iii) transaction size. Our analysis rules out several explanations linked to financial flexibility as explanations for the results. We therefore find consistent evidence that strategic underleveraging conditional on the acquisition outlook is an important determinant of capital structure dynamics.
Original languageEnglish
Article number102283
Peer-reviewed scientific journalJournal of Corporate Finance
Publication statusPublished - 29.08.2022
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • capital structure
  • mergers and acquisitions
  • industrial competition
  • bidding competition
  • strategic capital structure
  • financial flexibility

Areas of Strength and Areas of High Potential (AoS and AoHP)

  • AoS: Financial management, accounting, and governance


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