Bank Dependence and Bank Financing in Corporate M&A (CEIBS Working Paper, No. 019/2020/FIN, 2020)

Sheng Huang, Anand Srinivasan, Ruichang Lu

Research output: Working paper

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Abstract

We examine the valuation impact of bank-financed M&As and the loan contracts used to finance M&A transactions, focusing on the difference between bank-dependent acquirers and other acquirers. We find that bank-financed deals have higher acquirer’s CARs relative to other cash M&A deals, but this certification effect exists only for bank-dependent acquirers. Despite bank-dependent acquirers being more susceptible to hold-up, banks do not impose higher loan pricing or more stringent non-price terms on them. After completion of the acquisition, bank-dependent acquirers retain the M&A financing banks for a much larger share of their borrowing needs, suggesting the importance of repeat business for lack of hold-up. Our findings highlight the positive aspects of bank dependence and the importance of implicit contracting for the lack of hold-up in lending markets.
Original languageEnglish
Publication statusPublished - 1 Jan 2020

Source

China Europe International Business School (CEIBS)

Keywords

  • Bank Dependence
  • Bank Financing
  • Creditor Monitoring
  • M&A

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