The interplay between target firm R&D, acquirer debt financing and takeover premia
Publication typeArticle in academic journal
JournalApplied Economics Letters
Publication Begin page451
Publication End page455
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AbstractThe level of acquisition premia is of paramount importance in light of the vast sums paid to target shareholders and the often disappointing returns realized by corporate buyers. In this letter, we focus on the impact of R&D investments by targets on the acquisition premium contingent upon the acquirer's financing choices. Based on a unique hand-collected sample of 407 listed European transactions, we find a positive effect of target R&D on premia paid. Yet, when acquirers finance the acquisition of an R&D intensive target with debt, the positive relation disappears. Consequently, we establish that financing sources affect bidding strategies of acquiring companies in case of difficult-to-value targets.
Knowledge Domain/IndustryAccounting & Finance