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Financial versus Strategic Buyers

Published online by Cambridge University Press:  06 March 2019

Marc Martos-Vila ,
Matthew Rhodes-Kropf  and
Jarrad Harford
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Abstract

This article introduces the impact of debt misvaluation on merger and acquisition activity. We show the potential for debt misvaluation to help explain the shifting dominance of financial acquirers (private equity firms) relative to strategic acquirers (operating companies). Fundamental differences in governance and project coinsurance between the two types of acquirer would interact with debt misvaluation, resulting in variation in how assets are owned that depends on debt market conditions. We find support for our theory in merger data using a novel measure of debt misvaluation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 6 , December 2019 , pp. 2635 - 2661
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019 

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Footnotes

1

We thank Stephen Brown and Jennifer Conrad (the editors) and Ulf Axelson, Murillo Campello, Alexander Gorbenko, Victoria Ivashina (the referee), Matthias Kahl, Rich Mathews, Ramana Nanda, Thomas Philippon, Gordon Phillips, Jeremy Stein, Per Stromberg, S. Viswanathan, and Gregor Weiss for fruitful discussions and comments, and we thank seminar participants at the 2013 American Finance Association meetings, the 2012 Western Finance Association meetings, the 2012 European Finance Association meetings, the first ECCCS (European Center for Corporate Control Studies) workshop, the 2012 Campus for Finance, the 2012 LBS Private Equity Findings Symposium, Harvard University, Claremont McKenna College, London School of Economics, U. Carlos III Madrid, and the 2012 UC Davis Symposium on Financial Institutions & Intermediaries. All errors are our own.

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