Leverage Deviations and Acquisition Probability in the UK: The Moderating Effect of Firms' Internal Capabilities and Deal Diversification Potential

Agyei-Boapeah, Henry; Osei, Deborah; Franco, Michael

Abstract

In the context of mergers and acquisitions, we provide evidence to suggest that a firm's deviation from its optimal financial leverage may impede its ability to undertake future expansions. We also find the negative effect of leverage deviation on acquisition probability to be moderated by firms' existing capabilities. Further, we find those deviating firms to have better prospects of achieving growth when they pursue cross-industry and/or crosscountry mergers and acquisitions. Overall, our findings imply that deviations from the optimal financial leverage may be costly to firms but this cost is not symmetric across all firms and all deal types.

Citation

Agyei-Boapeah, H., Osei, D., & Franco, M. (2019). Leverage Deviations and Acquisition Probability in the UK: The Moderating Effect of Firms' Internal Capabilities and Deal Diversification Potential. European Management Review, 16(4), 1059-1077. https://doi.org/10.1111/emre.12307

• Journal Article Type: Article
• Acceptance Date: May 15, 2018
• Online Publication Date: Jul 5, 2018
• Publication Date: 2019
• Deposit Date: Jul 1, 2021
• Publicly Available Date: Jul 6, 2021
• Journal: European Management Review
• Print ISSN: 1740-4754
• Electronic ISSN: 1740-4762
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 16
• Issue: 4
• Pages: 1059-1077
• DOI: https://doi.org/10.1111/emre.12307
• Keywords: optimal leverage; industrial diversification; geographic diversification; internal capabilities; mergers and acquisitions (M&A)
• Public URL: https://nottingham-repository.worktribe.com/output/5750604
• Publisher URL: https://onlinelibrary.wiley.com/doi/10.1111/emre.12307
• Additional Information: This is the peer reviewed version of the following article: Agyei-Boapeah, H., Osei, D., and Franco, M. (2019) Leverage Deviations and Acquisition Probability in the UK: The Moderating Effect of Firms’ Internal Capabilities and Deal Diversification Potential. European Management Review, 16: 1059– 1077., which has been published in final form at https://doi.org/10.1111/emre.12307. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions