Why Do Over-Deviated Firms from Target Leverage Undertake Foreign Acquisitions?
Author | : Yousry Ahmed |
Publisher | : |
Total Pages | : 55 |
Release | : 2018 |
ISBN-10 | : OCLC:1304334982 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Why Do Over-Deviated Firms from Target Leverage Undertake Foreign Acquisitions? written by Yousry Ahmed and published by . This book was released on 2018 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.