Journal of Corporate Finance Vol. 6 No. 4 2000
Financial leverage changes associated with corporate mergers
Abstract
We empirically examine whether firms increase financial leverage following mergers. Firms could increase financial leverage either because of an increase in debt capacity or because of unused debt capacity from pre-merger years. We find that financial leverage of combined firms increases significantly following mergers. A cross-sectional analysis shows that the change in financial leverage around mergers is significantly positively correlated with the announcement period market-adjusted returns. Further tests indicate that the increase in financial leverage is an outcome of an increase in debt capacity, although there is weak evidence that some of the increase in financial leverage is a result of past unused debt capacity.
- DOI
- 10.1016/s0929-1199(00)00007-9
- Volume
- 6
- Issue
- 4
- Pages
- 377-402
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref