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Leverage Deviations and Acquisition Probability in the UK: The Moderating Effect of Firms’ Internal Capabilities and Deal Diversification Potential
Author(s) -
AgyeiBoapeah Henry,
Osei Deborah,
Franco Michael
Publication year - 2018
Publication title -
european management review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.784
H-Index - 32
eISSN - 1740-4762
pISSN - 1740-4754
DOI - 10.1111/emre.12307
Subject(s) - leverage (statistics) , mergers and acquisitions , diversification (marketing strategy) , business , industrial organization , monetary economics , econometrics , economics , finance , marketing , statistics , mathematics
In the context of mergers and acquisitions, we provide evidence to suggest that a firm's deviation from its optimal financial leverage may impede its ability to undertake future expansions. We also find the negative effect of leverage deviation on acquisition probability to be moderated by firms’ existing capabilities. Further, we find those deviating firms to have better prospects of achieving growth when they pursue cross‐industry and/or cross‐country mergers and acquisitions. Overall, our findings imply that deviations from the optimal financial leverage may be costly to firms but this cost is not symmetric across all firms and all deal types.