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TARGET FINANCIAL INDEPENDENCE AND TAKEOVER PRICING
Author(s) -
Jindra Jan,
Moeller Thomas
Publication year - 2015
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12064
Subject(s) - independence (probability theory) , business , bargaining power , capital (architecture) , sample (material) , monetary economics , finance , economics , financial system , microeconomics , statistics , chemistry , mathematics , archaeology , chromatography , history
Abstract In a large sample of U.S. takeovers, we find that acquisitions of targets with greater financial independence are associated with higher takeover premiums and lower acquirer announcement returns. This empirical result is most consistent with targets' deriving bargaining power from their financial independence. Raising external funds is costly. Targets that do not depend on external funds do not need new external capital and have no reason to acquiesce potential takeover premium to acquirers that can provide capital. Therefore, more financially independent targets should be in stronger bargaining positions vis‐à‐vis potential acquirers, leading to the effect on takeover pricing that we observe.