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.

Financial constraints, institutions, and foreign ownership

“…The outside option is central to our analysis and results. Alquist et al (2016) analyze changes in the industry composition of foreign ownership during financial crises, and Mukherjee and Proebsting (2017) examine how the composition of the pool of domestic acquiring firms changes during financial crises. Neither of these papers addresses the optimal ownership structure problem of an individual firm.…”

Financial Constraints, Institutions, and Foreign Ownership

“…This outside option is central to our analysis and results Alquist et al (2016). analyze changes in the industry composition of foreign ownership during financial crises and in related workMukherjee and Proebsting (2017) examine how the composition of the pool of domestic acquiring firms changes during financial crises. Neither of these papers address the optimal ownership structure problem of an individual firm, which is the distinctive focus of the present paper.5 For example, our results shed light on why foreign ownership structures may be insensitive to institutional factors for minority stakes while external finance matters for all levels of foreign ownership.…”