Leverage,governance and wealth effects of asset purchasers |
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| Affiliation: | 1. Lubar School of Business, University of Wisconsin, Milwaukee, United States;2. Stern School of Business, New York University, United States;3. Sawyer Business School, Suffolk University, Boston, MA, United States;4. Charlton College of Business, University of Massachusetts Dartmouth, United States;1. School of Business, University of the Sunshine Coast, Maroochydore DC, QLD 4558, Australia;2. Shanghai Lixin University of Commerce, 2800 Wenxiang Road, Shanghai, China;3. School of Business, James Cook University, Townsville, QLD 4811, Australia;1. School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel;2. Stockholm School of Economics in Riga, Latvia;1. Utah State University, Department of Economics and Finance, Jon M. Huntsman School of Business, Logan, UT 84322, United States;2. Lehigh University, Perella Department of Finance, College of Business and Economics, Bethlehem, PA 18015, United States |
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| Abstract: | We examine a sample of 670 firms that announce asset purchases. We hypothesize that buyer announcement returns should be higher in the presence of better monitoring and better governance. Consistent with the monitoring hypothesis, we find that buyers with higher private debt make purchase decisions that increase shareholder value. Consistent with the governance hypothesis, we find that returns are higher for buyers that have lower antitakeover provisions in place. Consistent with the managerial discretion hypothesis, buyer announcement-period returns increase with buyer leverage. Consistent with the liquidity hypothesis, we find that announcement-period returns decrease with the seller's Z-score, suggesting that buyers benefit from the lower liquidity of assets sold by sellers with lower debt capacity and higher financial distress. We also find that buyer announcement-period returns are directly related to their operating performance in the post-purchase year. |
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