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The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained

Gorbenko, AS; Malenko, A; (2018) The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained. The Review of Financial Studies , 31 (10) pp. 3937-3978. 10.1093/rfs/hhx126. Green open access

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Abstract

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.

Type: Article
Title: The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained
Open access status: An open access version is available from UCL Discovery
DOI: 10.1093/rfs/hhx126
Publisher version: http://dx.doi.org/10.1093/rfs/hhx126
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: D44 - AuctionsG32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; GoodwillG34 - Mergers; Acquisitions; Restructuring; Corporate Governance
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/10105340
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