TY - JOUR
T1 - M&A Activity and the Capital Structure of Target Firms
AU - Flannery, Mark
AU - Hanousek, Jan
AU - Shamshur, Anastasiya
AU - Tresl, Jiri
PY - 2022/4/29
Y1 - 2022/4/29
N2 - We study 6,083 European firms that were acquired between 1999 and 2015. Soon after the acquisition, the acquired firms promptly and substantially close the gap between their actual leverage ratios and their target (optimal) ratios. Firms that were over- (under-) leveraged at the start of their acquisition year move their debt-to-assets ratio from 34.1% to 20% (10% to 18.5%) by the end of the following year. Under-leveraged firms expand their assets rapidly following acquisition, as they gain improved access to investable resources. Our results are consistent with the trade-off theory of capital structure and with the existence of firm-specific target leverage ratios.
AB - We study 6,083 European firms that were acquired between 1999 and 2015. Soon after the acquisition, the acquired firms promptly and substantially close the gap between their actual leverage ratios and their target (optimal) ratios. Firms that were over- (under-) leveraged at the start of their acquisition year move their debt-to-assets ratio from 34.1% to 20% (10% to 18.5%) by the end of the following year. Under-leveraged firms expand their assets rapidly following acquisition, as they gain improved access to investable resources. Our results are consistent with the trade-off theory of capital structure and with the existence of firm-specific target leverage ratios.
U2 - 10.1017/S0022109022000436
DO - 10.1017/S0022109022000436
M3 - Article
SN - 0022-1090
JO - JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS
JF - JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS
ER -