Strategic Underleveraging and Acquisitions

Magnus Blomkvist; Karl Felixson; Anders Löflund; Hitesh Vyas

doi:10.1016/j.jcorpfin.2022.102283

Strategic Underleveraging and Acquisitions

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

^*Huvudförfattare för detta arbete

Finansiell ekonomi, Helsingfors

Forskningsoutput: Tidskriftsbidrag › Artikel › Vetenskaplig › Peer review

1 Citeringar (Scopus)

Sammanfattning

TThis paper investigates the Morellec and Zhdanov (2008) (MZ) prediction that firms strategically underleverage to win takeover contests. We document support for several specific MZ model predictions: pre-bid underleveraging increases with bidding competition, synergies offered by targets, investment type, industry concentration, and with firms actively adjusting their capital structure in advance of bidding. An empirically verified financial frictions explanation does not fully account for these patterns. Taken together, we find consistent evidence that strategic underleveraging conditional on the acquisition outlook is an important determinant of capital structure dynamics.

Originalspråk	Engelska
Artikelnummer	102283
Referentgranskad vetenskaplig tidskrift	Journal of Corporate Finance
Volym	76
ISSN	0929-1199
DOI	https://doi.org/10.1016/j.jcorpfin.2022.102283
Status	Publicerad - 29.08.2022
MoE-publikationstyp	A1 Originalartikel i en vetenskaplig tidskrift

Nyckelord

512 Företagsekonomi

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10.1016/j.jcorpfin.2022.102283Licens: CC BY

1-s2.0-S0929119922001262-mainPublicerad version, 622 KBLicens: CC BY

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title = "Strategic Underleveraging and Acquisitions",

abstract = "TThis paper investigates the Morellec and Zhdanov (2008) (MZ) prediction that firms strategically underleverage to win takeover contests. We document support for several specific MZ model predictions: pre-bid underleveraging increases with bidding competition, synergies offered by targets, investment type, industry concentration, and with firms actively adjusting their capital structure in advance of bidding. An empirically verified financial frictions explanation does not fully account for these patterns. Taken together, we find consistent evidence that strategic underleveraging conditional on the acquisition outlook is an important determinant of capital structure dynamics.",

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AU - Blomkvist, Magnus

AU - Felixson, Karl

AU - Löflund, Anders

AU - Vyas, Hitesh

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N2 - TThis paper investigates the Morellec and Zhdanov (2008) (MZ) prediction that firms strategically underleverage to win takeover contests. We document support for several specific MZ model predictions: pre-bid underleveraging increases with bidding competition, synergies offered by targets, investment type, industry concentration, and with firms actively adjusting their capital structure in advance of bidding. An empirically verified financial frictions explanation does not fully account for these patterns. Taken together, we find consistent evidence that strategic underleveraging conditional on the acquisition outlook is an important determinant of capital structure dynamics.

AB - TThis paper investigates the Morellec and Zhdanov (2008) (MZ) prediction that firms strategically underleverage to win takeover contests. We document support for several specific MZ model predictions: pre-bid underleveraging increases with bidding competition, synergies offered by targets, investment type, industry concentration, and with firms actively adjusting their capital structure in advance of bidding. An empirically verified financial frictions explanation does not fully account for these patterns. Taken together, we find consistent evidence that strategic underleveraging conditional on the acquisition outlook is an important determinant of capital structure dynamics.

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KW - industrial competition

KW - bidding competition

KW - strategic capital structure

KW - financial flexibility

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U2 - 10.1016/j.jcorpfin.2022.102283

DO - 10.1016/j.jcorpfin.2022.102283

M3 - Article

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Strategic Underleveraging and Acquisitions

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