The Performance of Acquisitions by High Default Risk Bidders

Bruyland, Evy; Lasfer, Meziane; De Maeseneire, Wouter; Song, Wei

Abstract

We investigate the takeover strategies of high default risk acquirers and their value impact. We find that these bidders select bigger, less profitable and unrelated targets, pursue transactions during recessions, and pay with shares by offering target shareholders high premiums. Their long-term buy-and-hold returns are extremely negative, and reflect fundamentally their substantial drop in profitability combined with high leverage. We show that the well-established long-run underperformance of acquiring firms is largely driven by this subset of acquirers. The results are similar when we use alternative measures of default risk and performance, and a global sample of non-US bidders.

Citation

Bruyland, E., Lasfer, M., De Maeseneire, W., & Song, W. (2019). The Performance of Acquisitions by High Default Risk Bidders. Journal of Banking and Finance, 101, 37-58. https://doi.org/10.1016/j.jbankfin.2019.01.019

• Journal Article Type: Article
• Acceptance Date: Jan 21, 2019
• Online Publication Date: Feb 1, 2019
• Publication Date: 2019-04
• Deposit Date: Jul 20, 2021
• Publicly Available Date: Jul 20, 2021
• Journal: Journal of Banking and Finance
• Print ISSN: 0378-4266
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 101
• Pages: 37-58
• DOI: https://doi.org/10.1016/j.jbankfin.2019.01.019
• Keywords: Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/5809200
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0378426619300196?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: The performance of acquisitions by high default risk bidders; Journal Title: Journal of Banking & Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jbankfin.2019.01.019; Content Type: article; Copyright: © 2019 Elsevier B.V. All rights reserved.