M&A activity and the capital structure of target firms


Flannery, Mark J. ; Hanousek, Jan ; Shamshur, Anastasiya ; Tresl, Jiri


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DOI: https://doi.org/10.1017/S0022109022000436
URL: https://www.cambridge.org/core/journals/journal-of...
URN: urn:nbn:de:bsz:180-madoc-629155
Document Type: Article
Year of publication Online: 2022
Date: 29 April 2022
The title of a journal, publication series: Journal of Financial and Quantitative Analysis : JFQA
Volume: tba
Issue number: tba
Page range: 1-32
Place of publication: New York, NY
Publishing house: Cambridge University Press
ISSN: 0022-1090 , 1756-6916
Publication language: English
Institution: Business School > ABWL, Finanzwirtschaft u. Finanzmarktinstitutionen (Spalt 2019-)
Pre-existing license: Creative Commons Attribution 4.0 International (CC BY 4.0)
Subject: 650 Management
Abstract: We study 6,083 European firms that were acquired between 1999 and 2015. Soon after the acquisition, the acquired firms promptly and substantially close the gap between their actual leverage ratios and their target (optimal) ratios. Firms that were over- (under-) leveraged at the start of their acquisition year move their debt-to-assets ratio from 34.1% to 20% (10% to 18.5%) by the end of the following year. Under-leveraged firms expand their assets rapidly following acquisition, as they gain improved access to investable resources. Our results are consistent with the trade-off theory of capital structure and with the existence of firm-specific target leverage ratios.

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