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Stapled Financing, Value Certification, and Lending Efficiency

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  • Aslan, Hadiye
  • Kumar, Praveen

Abstract

We examine whether financing commitments from a target firm’s financial advisor, in the form of stapled financing, provide certification of target value. Using a data set of leveraged buyouts spanning 2002–2011, and addressing endogeneity issues, we find that stapled financing has significant positive effects on sellers’ shareholder wealth, especially for targets suffering from greater adverse selection. Stapled financing facilitates deal financing by allowing buyers to obtain lower-cost and longer-maturity debt, and it is positively associated with bidding intensity. Investment banks offering stapled financing appear to trade off higher expected advisory fees against loss of lending efficiency ex post.

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  • Aslan, Hadiye & Kumar, Praveen, 2017. "Stapled Financing, Value Certification, and Lending Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(2), pages 677-703, April.
    • Handle: RePEc:cup:jfinqa:v:52:y:2017:i:02:p:677-703_00
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    Cited by:

    1. Maggie Rong Hu & Xiaoyang Li & Yang Shi, 2019. "Adverse Selection and Credit Certificates: Evidence from a P2P Platform," Working Papers id:13038, eSocialSciences.
    2. Hu, Maggie Rong & Li, Xiaoyang & Shi, Yang, 2019. "Adverse Selection and Credit Certificates: Evidence from a P2P Platform," ADBI Working Papers 942, Asian Development Bank Institute.

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