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Acquisitions of Financially Constrained Targets

Author

Listed:
  • Maslinawati Mohamad*

    (Faculty of Accountancy, University Teknologi MARA, Malaysia)

  • Surendranath Rakesh Jory

    (Banking and Finance Department, University of Southampton, United Kingdom)

  • Nnamdi Madichie

    (Centre of Research and Enterprise, London School of Business and Management, United Kingdom)

Abstract

We examine the extent to which bidders’ stock returns at acquisition announcements reflect the financing needs of the target firm. Using a sample of the United States mergers and acquisitions of a period starts in 1985 and ends in 2012, we find that bidders of financially constrained targets pay lower acquisition premiums and earn higher announcement period cumulative abnormal returns than bidders of unconstrained targets. The lower premium and positive stock market reaction are both sources of value for bidders’ shareholders. Our results contrast the findings of the literature that document an insignificant wealth transfer to bidder shareholders.

Suggested Citation

  • Maslinawati Mohamad* & Surendranath Rakesh Jory & Nnamdi Madichie, 2018. "Acquisitions of Financially Constrained Targets," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 868-877:5.
    • Handle: RePEc:arp:tjssrr:2018:p:868-877
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    References listed on IDEAS

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