M&A activity and the capital structure of target firms

0582613 - NHÚ 2024 RIV GB eng J - Journal Article
Flannery, M. J. - Hanousek, Jan - Shamshur, A. - Trešl, J.
M&A activity and the capital structure of target firms.
Journal of Financial and Quantitative Analysis. Roč. 58, č. 5 (2023), s. 2064-2095. ISSN 0022-1090. E-ISSN 1756-6916
Institutional support: RVO:67985998
Keywords : M&A * target capital structure * leverage deficit
OECD category: Business and management
Impact factor: 3.9, year: 2022
Method of publishing: Open access
https://doi.org/10.1017/S0022109022000436

We study 6,083 European firms that were acquired between 1999 and 2015. Soon after the acquisition, the acquired firms promptly and substantially close the gap between their actual leverage ratios and their target (optimal) ratios. Firms that were over- (under-) leveraged at the start of their acquisition year move their debt-to-assets ratio from 34.1% to 20% (10% to 18.5%) by the end of the following year. Under-leveraged firms expand their assets rapidly following acquisition, as they gain improved access to investable resources. Our results are consistent with the trade-off theory of capital structure and with the existence of firm-specific target leverage ratios.
Permanent Link: https://hdl.handle.net/11104/0350694