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The performance of acquisitions by high default risk bidders
Bruyland, Evy Lasfer, Meziane De Maeseneire, Wouter Song, Wei
Bruyland, Evy
Lasfer, Meziane
De Maeseneire, Wouter
Song, Wei
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2019
Journal
Journal of Banking and Finance
Book
Publication Volume
101
Publication Issue
April
Publication Begin page
37
Publication End page
58
Publication NUmber of pages
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Abstract
We investigate the takeover strategies of high default risk acquirers and their value impact. We find that these bidders select bigger, less profitable and unrelated targets, pursue transactions during recessions, and pay with shares by offering target shareholders high premiums. Their long-term buy-and-hold returns are extremely negative, and reflect fundamentally their substantial drop in profitability combined with high leverage. We show that the well-established long-run under performance of acquiring firms is largely driven by this sub-set of acquirers. The results are similar when we use alternative measures of default risk and performance, and a global sample of non-US bidders.
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Keywords
Mergers and Acquisitions, High Default Risk Bidders, Long-Term Performance, Short-Term Market Reaction, Agency Conflicts, Distress