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Bank Dependence and Bank Financing in Corporate M&A (CEIBS Working Paper, No. 019/2020/FIN, 2020)

Abstract

We examine the valuation impact of bank-financed M&As and the loan contracts
used to finance M&A transactions, focusing on the difference between bank-dependent
acquirers and other acquirers. We find that bank-financed deals have higher acquirer’s
CARs relative to other cash M&A deals, but this certification effect exists only for
bank-dependent acquirers. Despite bank-dependent acquirers being more susceptible
to hold-up, banks do not impose higher loan pricing or more stringent non-price terms
on them. After completion of the acquisition, bank-dependent acquirers retain the
M&A financing banks for a much larger share of their borrowing needs, suggesting the
importance of repeat business for lack of hold-up. Our findings highlight the positive
aspects of bank dependence and the importance of implicit contracting for the lack of
hold-up in lending markets.

Keyword

Author Community

[Huang, Sheng] China Europe International Business School (CEIBS)

[Lu, Ruichang] Peking University

[Srinivasan, Anand] National University of Singapore


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Source

Year:2020

Publish Date:2020-06

Language:English

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