The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained

Download or read book The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained written by Alexander S. Gorbenko and published by . This book was released on 2017 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: While acquisitions are a popular form of investment, the link between firms' financial constraints and acquisition policies is not well-understood. We develop a model in which financially-constrained bidders decide when to approach the target, how much to bid, and whether to bid in cash or stock. Because of ability to pay in stock, financial constraints do not affect the identity of the winning bidder. However, they lower a bidder's incentives to approach the target. In equilibrium, auctions are initiated by bidders with low constraints or high synergies. The use of cash is positively related to synergies, acquirer's gains from the deal, and negatively to financial constraints.