Financial leverage changes associated with corporate mergers
نویسندگان
چکیده
We empirically examine whether firms increase financial leverage following mergers. Firms could increase financial leverage either because of an increase in debt capacity or because of unused debt capacity from pre-merger years. We find that financial leverage of combined firms increases significantly following mergers. A cross-sectional analysis shows that the change in financial leverage around mergers is significantly positively correlated with the announcement period market-adjusted returns. Further tests indicate that the increase in financial leverage is an outcome of an increase in debt capacity, although there is weak evidence that some of the increase in financial leverage is a result of past unused debt capacity. q 2000 Elsevier Science B.V. All rights reserved. JEL classification: M41
منابع مشابه
The Mediation Effect of Financial Leverage on the Relationship between Ownership Concentration and Financial Corporate Performance
The purpose of this paper is examining the impact of financial leverage as a mediation variable on the relationship between ownership concentration and financial corporate performance. To test the hypotheses, multiple regression analysis is used. The statistical population of this research is all listed companies in Tehran Stock Exchange. However, data were available only for 60 companies durin...
متن کاملPurely Financial Synergies and the Optimal Scope of the Firm: Implications for Mergers, Spin-Offs, and Structured Finance
In the presence of corporate taxes and default costs, mergers can realize purely financial synergies due to reduced risk and the potential for greater leverage, as suggested by Lewellen (1971). But his conclusion that mergers always create positive financial synergies is incorrect: when firms have quite different risks or default costs, the loss from no longer being able to fit different capita...
متن کاملCross Border Mergers and Acquisitions by Indian firms-An Analysis of Pre and Post Merger performance
The corporate sector all over the world is restructuring its operations through different types of consolidation strategies like mergers and acquisitions in order to face challenges posed by the new pattern of globalization, which has led to the greater integration of national and international markets.. The intensity of cross-border operations recorded an unprecedented ...
متن کاملImpact of Financial Characteristics on Future Corporate Risk-Taking Behavior
Organizational risk is often defined as a change in the flow of profit, or as a sys-tematic or non-systematic changes in the stock return flow. The risk taking of management is conceptualized as the actual investment decisions that are indictors due to uncertainty results. The purpose of this study is to investigate the effect of financial characteristics on future corporate risk taking behavio...
متن کاملThe Impact of Leverage on Firm Investment: Evidence from Tehran Stock Exchange
The impact of financial leverage on firm investment is one of the most important issues in corporate finance. Debt overhang reduces the incentives of shareholder–management coalition in controlling the firm to invest in positive net-present-value investment opportunities. On the other hand, firms without debt in their financial structure face with a new problem known as over-investment. T...
متن کامل