NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financing-Motivated Acquisitions

Isil Erel, Yeejin Jang, Michael S. Weisbach

NBER Working Paper No. 17867
Issued in February 2012
NBER Program(s):   CF

Managers often claim that an important source of value in acquisitions is the acquiring firm's ability to finance investments for the target firm. This claim implies that targets are financially constrained prior to being acquired and that these constraints are eased following the acquisition. We evaluate the extent to which acquisitions lower financial constraints on a sample of 5,187 European acquisitions occurring between 2001 and 2008. Each of these targets remains a subsidiary of its new parent, so we can observe the target's financial policies following the acquisition. We examine whether these post-acquisition financial policies reflect improved access to capital. We find that the level of cash target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline significantly, while investment significantly increases following the acquisition. These effects are stronger in deals more likely associated with financing improvements. These findings are consistent with the view that easing financial frictions is a source of value that motivates acquisitions.

download in pdf format
   (166 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17867

Published: Do Acquisitions Relieve Target Firms’ Financial Constraints? Authors ISIL EREL, YEEJIN JANG, The Journal of Finance Volume 70, Issue 1, pages 289–328, February 2015

Users who downloaded this paper also downloaded these:
Malmendier, Moretti, and Peters w18024 Winning by Losing: Evidence on the Long-Run Effects of Mergers
Erel, Jang, and Weisbach w18840 Do Acquisitions Relieve Target Firms' Financial Constraints?
Rajan w17760 The Corporation in Finance
Nunn w17869 Culture and the Historical Process
Harris, Jenkinson, and Kaplan w17874 Private Equity Performance: What Do We Know?
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us