Cross-border mergers and acquisitions and default risk

Koerniadi, Hardjo and Krishnamurti, Chandrasekhar and Tourani-Rad, Alireza (2015) Cross-border mergers and acquisitions and default risk. International Review of Financial Analysis, 42. pp. 336-348. ISSN 1057-5219

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We examine the impact of cross-border mergers on acquirers’ post-merger default risk using a sample of 375 US acquiring firms from 1997 to 2011. After controlling for cultural, institutional, geographic and managerial factors between the US and target firm countries, we find that on average, cross-border transactions decrease the level of default risk of the acquiring firms. Our results are consistent with the asymmetric information hypothesis that managers take advantage of the overvaluation and volatility of their stock prices. We also observe that the geographic distance and industrial relatedness play significant roles in affecting post-merger default risk but find limited evidence indicating the relevance of institutional environments and cultural factors on changes in default risk. Another significant finding is that managers use cross-border mergers to manage the extant risk of their firms. However, their incentives to use cross-border mergers to manage risk is mitigated by option compensation.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Accepted version deposited in accordance with the copyright policy of the publisher.
Faculty / Department / School: Current - Faculty of Business, Education, Law and Arts - School of Commerce
Date Deposited: 06 Apr 2016 05:31
Last Modified: 09 Jan 2017 23:02
Uncontrolled Keywords: cross-border mergers; default risk; idiosyncratic risk
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
Identification Number or DOI: 10.1016/j.irfa.2015.08.009

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