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Loan price in mergers and acquisitions

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  • Gao, Ning
  • Hua, Chen
  • Khurshed, Arif

Abstract

We investigate loan price in mergers and acquisitions (M&As), using hand-matched loan information for a sample of 512 U.S. M&A transactions. We find the relative size of a deal constitutes a prominent determinant of the loan price measured by the all-in spread drawn (AISD). This result is robust to several specifications that address endogeneity concerns. Cross-sectional analyses show that aggravated credit risk and information uncertainty after M&A go some way towards explaining lenders' concerns over large relative deal size. Further analysis demonstrates higher AISD is associated with lower post-transaction performance, indicating loan price factors in the risk of poor post-transaction performance correctly.

Suggested Citation

  • Gao, Ning & Hua, Chen & Khurshed, Arif, 2021. "Loan price in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:corfin:v:67:y:2021:i:c:s092911992030198x
    DOI: 10.1016/j.jcorpfin.2020.101754
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    More about this item

    Keywords

    Loan price; Mergers and acquisitions (M&As); Relative deal size; Post-acquisition performance;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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