Commitment or constraint? The effect of loan covenants on merger and acquisition activity

Gene Ambrocio, Gonul Colak, Iftekhar Hasan*

*Huvudförfattare för detta arbete

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4 Citeringar (Scopus)

Sammanfattning

We investigate how loan covenants associated with potential target firms affect takeover deals. We propose two possible channels. Under a discipline channel, the target firm becomes an attractive candidate for takeovers and merger deals are facilitated. Under a constraint channel, covenants hinder merger activity. We find support for the latter channel. Takeover likelihood is lower, deal failures are more common, the likelihood of price renegotiation is higher, and acquisition premium is lower when the target is bound by covenants. Covenant tightness exacerbates this effect.
OriginalspråkEngelska
Artikelnummer102711
Referentgranskad vetenskaplig tidskriftFinance Research Letters
Volym47
NummerB
ISSN1544-6123
DOI
StatusPublicerad - 06.06.2022
MoE-publikationstypA1 Originalartikel i en vetenskaplig tidskrift

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