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    The risk effects of acquiring distressed firms

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    Publication type
    Journal article with impact factor
    Author
    Bruyland, Evy
    De Maeseneire, Wouter
    Publication Year
    2016
    Journal
    Journal of Business Finance and Accounting
    Publication Volume
    43
    Publication Issue
    9/10
    Publication Begin page
    1297
    Publication End page
    1324
    
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    Abstract
    Existing research shows that bidder default risk increases following acquisitions due to a rise in post-acquisition leverage and managerial risk-taking actions offsetting the potential for asset diversification. This study examines whether the risk effects of acquiring distressed targets are fundamentally different and investigates possible explanations for any dissimilarities. Bidders often acquire relatively smaller distressed targets in domestic and related industries and have a higher initial target stake and more financial flexibility, thereby minimizing risk exposure. Controlling for several characteristics of bidder investment behaviour in both types of deals, however, we find that the increase in bidder default risk is substantially larger when acquiring distressed firms.
    Keyword
    Mergers and Acquisitions, Distress, Default Risk, Volatility, Risk Factors, Financial Distress, Corporate Governance, Debt Capacity
    Knowledge Domain/Industry
    Accounting & Finance
    DOI
    10.1111/jbfa.12210
    URI
    http://hdl.handle.net/20.500.12127/5603
    ae974a485f413a2113503eed53cd6c53
    10.1111/jbfa.12210
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