Acquirers and financial constraints: Theory and evidence from emerging markets

Mukherjee, Rahul; Proebsting, Christian

Abstract

Financial crises in emerging market economies induce diverging patterns of ownership stakes and subsequent divestiture rates among domestic and foreign acquirers. We rationalize these empirical findings in a tractable model where domestic acquirers are subject to borrowing constraints. In contrast to standard fire-sale effects operating for acquisitions by foreign acquirers, acquisition patterns of domestic firms are shaped by a novel counteracting selection effect, resulting in larger acquired stakes and more persistent ownership. We present empirical evidence consistent with the model's predictions using a large dataset of domestic and cross-border emerging market acquisitions over 1990-2007. The estimated contribution of selection effects is quantitatively significant, leading to 12% increases in stakes, 25% increases in full acquisitions, and 30% declines in divestiture rates among crisis-time domestic acquisitions. Our results demonstrate how financial crises can have both short- and long-run effects through the market for corporate control, by changing the set of acquirers and how long acquirers keep ownership.

Citation

Mukherjee, R., & Proebsting, C. (2021). Acquirers and financial constraints: Theory and evidence from emerging markets. Journal of International Money and Finance, 117, Article 102440. https://doi.org/10.1016/j.jimonfin.2021.102440

• Journal Article Type: Article
• Acceptance Date: May 28, 2021
• Online Publication Date: Jun 30, 2021
• Publication Date: 2021-10
• Deposit Date: Jun 2, 2021
• Publicly Available Date: Jul 1, 2023
• Journal: Journal of International Money and Finance
• Print ISSN: 0261-5606
• Electronic ISSN: 1873-0639
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 117
• Article Number: 102440
• DOI: https://doi.org/10.1016/j.jimonfin.2021.102440
• Keywords: domestic mergers and acquisitions; cross-border mergers and acquisitions; emerging markets; financial crisis; financial constraints; capital reallocation
• Public URL: https://nottingham-repository.worktribe.com/output/5622348
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0261560621000917