Mergers increase default risk

Furfine, Craig; Rosen, Richard J.

doi:10.1016/j.jcorpfin.2011.03.003

Cited by 124 publications

(76 citation statements)

References 47 publications

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“…The literature has largely ignored the time it takes until a deal closes as a determinant of performance and a risk indicator of failure probability. Studies have excluded the effect of the time it takes for a deal to close by restricting samples to an arbitrarily set time period [4,5]. However, arbitrarily setting the interval to one year or any other interval is not only subjective, but can obscure important information implications of the time interval between deal announcement and deal closing.…”

Section: Introductionmentioning

confidence: 99%

Post-M&A Performance and Failure: Implications of Time until Deal Completion

Thompson

Kim

2020

Sustainability

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Firm values change substantially between deal announcement and closing, risking renegotiation or termination. For deals that eventually close, does waiting longer to close benefit the acquirer post-M&A? We investigate whether the time that elapses until deal completion is an indicator of post-M&A performance and failure. We find that deals taking an optimum time to implement perform better, supporting the due diligence hypothesis, while taking too long to close is an indication of poor post-M&A performance and subsequent failure, supporting the overdue hypothesis.

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Section: Introductionmentioning

confidence: 99%

Post-M&A Performance and Failure: Implications of Time until Deal Completion

Thompson

Kim

2020

Sustainability

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“…This gives us an initial sample of 168 deals. Some banks make multiple acquisitions within the same year, and we consolidate such deals into a single deal, following Furfine and Rosen (2011).…”

Section: Datamentioning

confidence: 99%

“…The high risk dummy captures incentives of high risk banks to pursue acquisitions that reduce their risk (Furfine and Rosen, 2011;Vallascas and Hagendorff, 2011). For instance, Furfine and Rosen (2011) show that the pre-merger default risk of firms affects their merger-related changes in risk.…”

Section: Control Variablesmentioning

confidence: 99%

Better safe than sorry? CEO inside debt and risk-taking in bank acquisitions

Srivastav

Armitage

Hagendorff

et al. 2018

Journal of Financial Stability

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Article:Srivastav, A orcid.org/0000-0003-4831-4458, Armitage, S, Hagendorff, J et al.(1 more author) (2018) Better safe than sorry? CEO inside debt and risk-taking in bank acquisitions. Journal of Financial Stability, 36. pp. 208-224. AbstractWidespread bank losses during the financial crisis have raised concerns that equity-based compensation for bank CEOs causes excessive risk-taking. Debt-based compensation, so-called inside debt, aligns the interests of CEOs with those of external creditors. We examine whether inside debt induces CEOs to pursue less risky acquisitions. Consistent with this, we show that acquisitions announced by CEOs with high inside debt incentives are associated with a wealth transfer from equity to debt holders. After the completion of a deal, banks where acquiring CEOs have high inside debt incentives display lower market measures of risk and lower loss exposures for taxpayers. JEL Classification: G21, G34, J33

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“…Not only do M&As have a huge impact on an acquirer's future operations and growth, but they also significantly change its risk profile. For example, Furfine and Rosen (2011) find that M&As increase the average default risk of the acquiring firms. Duchin and Schmidt (2013) report that acquisitions completed during US merger waves have higher uncertainty and information asymmetry than those occurring outside of merger waves, leading to poorer deal outcomes.…”

Section: Financial Hedging and Mandasmentioning

confidence: 99%

Financial Hedging and Firm Performance: Evidence from Cross‐border Mergers and Acquisitions

Chen

Han

Zeng

2016

Euro Fin Management

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Using a sample of 1,369 cross‐border acquisitions announced by Standard & Poor's 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than non‐users, which translates into a US$ 193.7 million shareholder gain for an average‐sized acquirer. In addition, we find that acquirers with hedging programmes have higher deal completion probabilities, longer deal completion times, and better long‐term post‐deal performance. We confirm our findings after employing an extensive array of models to address potential endogeneity. Overall, our results provide new insights into a link between corporate financial hedging and firm performance.

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Mergers increase default risk

Cited by 124 publications

References 47 publications

Post-M&A Performance and Failure: Implications of Time until Deal Completion

Post-M&A Performance and Failure: Implications of Time until Deal Completion

Better safe than sorry? CEO inside debt and risk-taking in bank acquisitions

Financial Hedging and Firm Performance: Evidence from Cross‐border Mergers and Acquisitions

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