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Tender Offers and Free Cash Flow: An Empirical Analysis

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  • Hanson, Robert C

Abstract

High free cash flow firms are characterized by a mis-match between growth opportunities and resources. High free cash flow target firms receive higher-than-average abnormal returns. Target returns are lower when the bidder is a high free cash flow firm. During the 1970s, results suggested.that cash-flow-rich bidding firms pursued low-benefit takeovers. During the 1980s, high free cash flow firms became the targets of tender offers. Results are consistent with the notion that reducing agency problems in target firms generates benefits and that bidding firms with large free cash flow undertake low-benefit acquisitions. Copyright 1992 by MIT Press.

Suggested Citation

  • Hanson, Robert C, 1992. "Tender Offers and Free Cash Flow: An Empirical Analysis," The Financial Review, Eastern Finance Association, vol. 27(2), pages 185-209, May.
    • Handle: RePEc:bla:finrev:v:27:y:1992:i:2:p:185-209
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    Cited by:

    1. Nagano, Mamoru & Yuan, Yuan, 2013. "Cross-border acquisitions in a transition economy: The recent experiences of China and India," Journal of Asian Economics, Elsevier, vol. 24(C), pages 66-79.
    2. William Mingyan Cheung & Li Jiang, 2016. "Does free cash flow problem contribute to excess stock return synchronicity?," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 123-140, January.
    3. Julan Du & Charles Ka Yui Leung & Derek Chu, 2014. "Return Enhancing, Cash-rich or simply Empire-Building? An Empirical Investigation of Corporate Real Estate Holdings," International Real Estate Review, Global Social Science Institute, vol. 17(3), pages 301-357.
    4. William Cheung & Li Jiang, 2016. "Does free cash flow problem contribute to excess stock return synchronicity?," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 123-140, January.
    5. Yang, Junhong & Guariglia, Alessandra & Guo, Jie (Michael), 2019. "To what extent does corporate liquidity affect M&A decisions, method of payment and performance? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 54(C), pages 128-152.
    6. Ren, Yaru & Li, Lin & Tong, Wilson H.S. & Lam, Peter, 2024. "When acquirers are short on cash flow in M&A deals," International Review of Financial Analysis, Elsevier, vol. 94(C).
    7. Rajesh Kumar & Sarbjit Singh Oberoi, 2019. "Cash Richness and Propensity to Acquire An Empirical Examination Based on Largest Deals," International Journal of Economics and Financial Issues, Econjournals, vol. 9(4), pages 74-79.
    8. Yaru Ren & Lin Li & Wilson H.S. Tong & Peter Lam, 2024. "When acquirers are short on cash flow in M&A deals," Post-Print hal-04562214, HAL.

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