Acquirers and financial constraints: Theory and evidence from emerging markets

Abstract

How do nancial frictions shape the set of acquirers, how much they acquire, and how long they keep ownership? To address these questions, we develop a tractable model of M&As whereby acquirers and targets emerge endogenously due to di erences in liquidity. Financial crises lead to selection e ects among acquirers that result in larger acquired stakes and more persistent ownership. We present evidence consistent with the predictions of the model in a dataset of domestic and cross-border M&As from emerging markets. Financially constrained domestic rms in crisis-hit countries acquire 11-15% more ownership. The survival rate of these acquisitions is 19-24% higher.

The ‘play’ of institutions and firm investment: Evidence from a transition economy

“…Further, we postulate that an improvement in institutions of governance does not benefit all firms in the same way but exhibits a distributional effect among firms of different degrees of financial constraints. The increasing evidence suggests that financial constraints are particularly relevant to young and small firms (Machokoto, 2020; Mukherjee & Proebsting, 2021). This pattern is particularly pertinent to less financially developed regions and weaker institutional environments where transaction costs are high, such as in emerging economies and regions (Mukherjee & Proebsting, 2021).…”

“…The increasing evidence suggests that financial constraints are particularly relevant to young and small firms (Machokoto, 2020; Mukherjee & Proebsting, 2021). This pattern is particularly pertinent to less financially developed regions and weaker institutional environments where transaction costs are high, such as in emerging economies and regions (Mukherjee & Proebsting, 2021). In this saying, financing is likely to be more binding for small businesses in developing economies.…”