The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained
Author(s)
Gorbenko, Alexander S; Malenko, Andrey
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Although acquisitions are a popular form of investment, the link between firms' financial constraints and acquisition policies is not well understood. We develop a model in which financially constrained bidders approach targets, decide how much to bid and whether to bid in cash or in stock. In equilibrium, financial constraints do not affect the identity of the winning bidder, but they lower bidders' incentives to approach the target. Auctions are initiated by bidders with low constraints or high synergies. The use of cash is positively related to synergies and the acquirer's gains from the deal and negatively to financial constraints.
Date issued
2017-12Department
Sloan School of ManagementJournal
Review of Financial Studies
Publisher
Oxford University Press (OUP)
Citation
Gorbenko, Alexander S. and Andrey Malenko. "The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained." Review of Financial Studies 31, 10 (October 2018): 3937-3978 © 2018 The Author(s)
Version: Author's final manuscript
ISSN
0893-9454
1465-7368