Yes / This paper examines how deviation from firms’ target leverage influences their decisions on undertaking foreign acquisitions. Using a sample of 5,746 completed bids by UK acquirers from 1987 to 2012, we observe that over-deviated firms are more likely to acquire foreign targets. Consistent with co-insurance theory, we find that over-deviated firms engage in foreign acquisition deals to relieve their financial constraints and to mitigate their financial distress risk. We also note that foreign acquisitions enhance over-deviated firms’ value and performance, measured by Tobin’s q and return on assets (ROA) respectively. These findings support the view that over-deviated firms pursue the most value-enhancing acquisitions. Overall, this paper suggests that co-insurance effects, value creation and performance improvements are the main incentives for over-deviated firms’ involvement in foreign acquisitions.
| Identifer | oai:union.ndltd.org:BRADFORD/oai:bradscholars.brad.ac.uk:10454/13201 |
| Date | 30 August 2017 |
| Creators | Ahmed, Y., Elshandidy, Tamer |
| Source Sets | Bradford Scholars |
| Language | English |
| Detected Language | English |
| Type | Article, Accepted Manuscript |
| Rights | © 2017 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license (http://creativecommons.org/licenses/by-nc-nd/4.0/) |
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