What drives corporate minority acquisitions around the world? The case for financial constraints

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Abstract

In this paper, I examine minority block acquisitions from 1990 to 2009, as well as possible theories for the presence of equity stake purchases. I find that target firms are financially constrained. Acquisitions significantly increase their stock prices at announcement, along with their investment expenditures afterwards. In the two years following the acquisition, 27% (9%) issue new equity (debt) and raise 27% (24%) of their market capitalization. These findings support the theory that equity stakes certify the investment opportunities of target firms. I also find some support for the contracting motive, mostly in countries with good investor protection and a well-performing banking sector.

Original languageEnglish (US)
Pages (from-to)78-95
Number of pages18
JournalJournal of Corporate Finance
Volume26
DOIs
StatePublished - Jun 2014
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Keywords

  • Corporate governance
  • Financial constraints
  • Minority acquisitions
  • Product market relations

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