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Financial constraints and synergy gains from mergers and acquisitions
Author(s) -
Duan Yang,
Jin Yong
Publication year - 2019
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/jifm.12091
Subject(s) - constraint (computer aided design) , corporate governance , shareholder , finance , portfolio , significant difference , business , mergers and acquisitions , abnormal return , economics , mathematics , stock exchange , statistics , geometry
This paper examines mergers and acquisitions motivated by financial constraints. Synergy gain is measured as the cumulative abnormal return of a value‐weighted portfolio of the acquirer and the target around the acquisition announcement. By constructing a financial constraint difference between the target and the acquirer, we find a positive relationship between the financial constraint difference and synergy gains generated from the acquisition. The positive effect of the financial constraint difference is only significant for high growth targets and severely constrained targets. The acquirer's corporate governance also enhances the synergy gains created from the financial constraint difference. Additional evidence shows that both acquirer's and target's shareholders benefit from the financial constraint difference. Our results are robust for different measures of financial constraint.