Journal of Corporate Finance Vol. 82 2023
Collateral shocks and M&A decisions
Abstract
We find that positive collateral shocks caused by increases in local real estate prices increase firms' propensities to undertake mergers and acquisitions (M&As). This effect is more pronounced for financially constrained and bank-dependent firms. After collateral value appreciation, acquirers issue more bank debt, secured debt, and lines of credit to finance acquisitions and show a preference for cash offer over equity offer to finance M&As. M&As driven by positive collateral shocks create value for acquiring shareholders in the long-run by avoiding overpayments, and generating synergies. Overall, our findings highlight the importance of the collateral channel in affecting the propensity and performance of M&A deals.
- DOI
- 10.1016/j.jcorpfin.2023.102433
- Volume
- 82
- Pages
- 102433
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib