Year: 2012
Type: dissertation
Abstract: The purpose of this study is to analyze how acquisition behavior is affected if the acquiring company has a capital structure that deviates from the optimal, i.e. the acquirer is either underleveraged or overleveraged.Despite that both capital structure choices and M&As have been vastly researched topics in financial economics, the studies combining these two fields are few.My study observes if the deviation from optimal capital structure increases or decreases the probability for making an acquisition, if it affects the method of payment, or if capital structure of the acquirer is reflected in the abnormal announcement return. DATAThe data used in the study consists of acquisitions executed between 2000 and 2010 in EU15 countries with a value higher than €1 million.These 3,313 acquisitions were compared to 26,050 firm years having adequate financial information available to calculate the optimal capital structure and the deviation from it.The acquisition data was collected from Securities Data Company (SDC) while the sample for firm years was retrieved from Thomson One Banker.RESULTS I found evidence that companies near to the optimal capital structure are the most active acquirers.Acquisition probability declines especially if a company is highly overleveraged but also underleverage is associated with lower acquisition probability.Additionally, overleveraged companies are more likely to use equity as a consideration, especially in firm acquisitions.The difference in asset acquisitions is not significant, though.Overleveraged companies as well as highly underleveraged seem to make more shareholder value increasing acquisitions and are welcomed with above average abnormal announcement return.
Source: Aaltodoc (Aalto University)
Author: Jussi Mattsson
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2625070020