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The impact of target firm financial distress in Australian takeovers

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  • Martin Bugeja
  • David Gallagher

Abstract

type="main" xml:id="acfi12062-abs-0001"> Of the motives that have been advanced to explain corporate acquisitions, the least explored is the acquisition of a target experiencing financial distress. This study addresses this void by examining whether target firm financial distress is related to takeover: attitude, premiums, payment method, competition and outcome. Despite inconsistent findings across our distress measures the tenor of the results suggest that distressed targets receive higher premiums and are less likely to be offered cash consideration. Additionally, takeover completion is lower and takeover competition higher for targets in financial distress. Financial distress does not influence whether a takeover is hostile or friendly.

Suggested Citation

  • Martin Bugeja & David Gallagher, 2015. "The impact of target firm financial distress in Australian takeovers," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(2), pages 361-396, June.
    • Handle: RePEc:bla:acctfi:v:55:y:2015:i:2:p:361-396
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    File URL: http://hdl.handle.net/10.1111/acfi.2015.55.issue-2
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    Cited by:

    1. Boubaker, Sabri & Cellier, Alexis & Manita, Riadh & Saeed, Asif, 2020. "Does corporate social responsibility reduce financial distress risk?," Economic Modelling, Elsevier, vol. 91(C), pages 835-851.
    2. Aljughaiman, Abdullah A. & Nguyen, Tam Huy & Trinh, Vu Quang & Du, Anqi, 2023. "The Covid-19 outbreak, corporate financial distress and earnings management," International Review of Financial Analysis, Elsevier, vol. 88(C).
    3. Comporek Michał, 2024. "Earnings Management in Business Groups during the SARS-CoV-2 Pandemic," Central European Economic Journal, Sciendo, vol. 11(58), pages 286-304.
    4. Braun, Declan & Han, Yue & Wang, Heng Emily, 2023. "The application of feed forward neural networks to merger arbitrage: A return-based analysis," Finance Research Letters, Elsevier, vol. 58(PB).
    5. Faff, Robert & Prasadh, Shyaam & Shams, Syed, 2019. "Merger and acquisition research in the Asia-Pacific region: A review of the evidence and future directions," Research in International Business and Finance, Elsevier, vol. 50(C), pages 267-278.
    6. Li, Yuanhui & Li, Xiao & Xiang, Erwei & Geri Djajadikerta, Hadrian, 2020. "Financial distress, internal control, and earnings management: Evidence from China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).
    7. Yushu Zhu, 2017. "Call it good, bad or no news? The valuation effect of debt issues," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1203-1229, December.

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