Bank Dependence and Bank Financing in Corporate M&A

Management Science, https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2020.3947

69 Pages Posted: 1 Aug 2017 Last revised: 25 Feb 2021

See all articles by Sheng Huang

Sheng Huang

China Europe International Business School (CEIBS)

Ruichang Lu

Department of Finance, Guanghua School of Management, Peking University

Anand Srinivasan

National University of Singapore - Department of Finance

Date Written: October 2, 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.

Keywords: Bank Dependence, M&A, Bank Financing, Creditor Monitoring

JEL Classification: G21, G33

Suggested Citation

Huang, Sheng and Lu, Ruichang and Srinivasan, Anand, Bank Dependence and Bank Financing in Corporate M&A (October 2, 2020). Management Science, https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2020.3947, Available at SSRN: https://ssrn.com/abstract=3010410 or http://dx.doi.org/10.2139/ssrn.3010410

Sheng Huang

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Ruichang Lu (Contact Author)

Department of Finance, Guanghua School of Management, Peking University ( email )

Beijing
China

Anand Srinivasan

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

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