We develop and empirically test a trade-off model for the analysis of leverage changes in mergers and acquisitions. Our study extends prior findings of a post-merger increase in leverage for the acquiring firm, by linking this leverage increase to merging firms that are less correlated, create significantly larger growth options, and have lower bankruptcy costs and lower volatility. Specifically, we show that acquiring firms are more likely to finance diversifying acquisitions with debt as equity holders exploit the increased debt capacity with higher leverage resulting in total merger gains that are positively associated with financial synergies. We also provide evidence of a U-shaped relationship between growth options and leverage changes theoretically and empirically in the context of mergers.

Agliardi, E., Amel-Zadeh, A., Koussis, N. (2016). Leverage changes and growth options in mergers and acquisitions. JOURNAL OF EMPIRICAL FINANCE, 37, 37-58 [10.1016/j.jempfin.2016.02.004].

Leverage changes and growth options in mergers and acquisitions

AGLIARDI, ELETTRA;
2016

Abstract

We develop and empirically test a trade-off model for the analysis of leverage changes in mergers and acquisitions. Our study extends prior findings of a post-merger increase in leverage for the acquiring firm, by linking this leverage increase to merging firms that are less correlated, create significantly larger growth options, and have lower bankruptcy costs and lower volatility. Specifically, we show that acquiring firms are more likely to finance diversifying acquisitions with debt as equity holders exploit the increased debt capacity with higher leverage resulting in total merger gains that are positively associated with financial synergies. We also provide evidence of a U-shaped relationship between growth options and leverage changes theoretically and empirically in the context of mergers.
2016
Agliardi, E., Amel-Zadeh, A., Koussis, N. (2016). Leverage changes and growth options in mergers and acquisitions. JOURNAL OF EMPIRICAL FINANCE, 37, 37-58 [10.1016/j.jempfin.2016.02.004].
Agliardi, Elettra; Amel-Zadeh, Amir; Koussis, Nicos
File in questo prodotto:
Eventuali allegati, non sono esposti

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/548331
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 11
  • ???jsp.display-item.citation.isi??? 8
social impact