The role of leverage in cross-border mergers and acquisitions

Hu, M and Yang, J 2016, 'The role of leverage in cross-border mergers and acquisitions', International Review of Economics and Finance, vol. 43, pp. 170-199.


Document type: Journal Article
Collection: Journal Articles

Title The role of leverage in cross-border mergers and acquisitions
Author(s) Hu, M
Yang, J
Year 2016
Journal name International Review of Economics and Finance
Volume number 43
Start page 170
End page 199
Total pages 30
Publisher Elsevier BV
Abstract We examine the relationship between leverage and cross-border mergers and acquisitions. Using a sample of 85,560 cross-border mergers and acquisitions in 57 countries over the period 1990 to 2010, we find that firms with higher leverage are less likely to acquire foreign targets, whereas firms with lower leverage tend to be targets acquired by foreign firms. These effects are more pronounced in Asian countries than North America. Acquisition premium, the likelihood of all-cash offer and the percentage of cash in the acquisition offer decrease with leverage in cross-border mergers and acquisitions. Foreign targets gain positive abnormal returns in the both short run and long run, while acquirers earn positive abnormal returns in the short-run, but negative returns in the long run. We also find that firms adjust their capital structure after the acquisition by issuing more equity if they were overleveraged, or issuing more debt if they were underleveraged before the acquisition. Our results provide international evidence on how leverage affects managerial decision to acquire foreign targets, payment method and acquisition premium in cross-border mergers and acquisitions. This study shows that the interdependent relationship between investment decision and financing decision exists worldwide.
Subject Banking, Finance and Investment not elsewhere classified
Keyword(s) Cross-border studies
Leverage
Mergers and acquisition
Target leverage
DOI - identifier 10.1016/j.iref.2015.10.039
Copyright notice © 2015 Elsevier Inc.
ISSN 1059-0560
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