The risk effects of acquiring distressed firms
Bruyland, Evy De Maeseneire, Wouter
Bruyland, Evy
De Maeseneire, Wouter
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2016
Journal
Journal of Business Finance and Accounting
Book
Publication Volume
43
Publication Issue
9/10
Publication Begin page
1297
Publication End page
1324
Publication Number of pages
Collections
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.
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Keywords
Mergers and Acquisitions, Distress, Default Risk, Volatility, Risk Factors, Financial Distress, Corporate Governance, Debt Capacity