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
Date Written: October 2, 2020
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: Suggested Citation