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Debt Issues around Mergers & Acquisitions

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  • Dennis, Steven A.
  • Wang, Song
  • Zhang, Yilei

Abstract

We investigate firms’ debt financing choices among bank loans, public bonds and privately placed debt around mergers and acquisitions (M&As). We find that prior to M&As, firms with above-optimal leverage tend to pursue arm’s-length debt financing in lieu of bank debt. We find that three-day CARs for highly levered firms and acquirer’s long-run performance are negatively associated with non-bank financing. This supports a monitoring avoidance hypothesis for highly levered firms’ non-bank debt financing decisions in M&As. As a falsification test, we do not find the same debt financing considerations of acquirer firms during their post-M&A period.

Suggested Citation

  • Dennis, Steven A. & Wang, Song & Zhang, Yilei, 2021. "Debt Issues around Mergers & Acquisitions," Research in International Business and Finance, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921000672
    DOI: 10.1016/j.ribaf.2021.101446
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