scroll to top
Loading icon
0

Mobile Menu

Header Layout

EBSCO Auth Banner

Let's find your institution. Click here.

Page title

Creditor Control of Corporate Acquisitions.

  • Academic Journal
  • Becher, David A1 (AUTHOR)
    Griffin, Thomas P2 (AUTHOR) thomas.griffin@villanova.edu
    Nini, Greg1 (AUTHOR)
  • Review of Financial Studies. Apr2022, Vol. 35 Issue 4, p1897-1932. 36p.
  • We examine the impact of creditor control rights on corporate acquisitions. Nearly 75 |$\%$| of loan agreements include restrictions that limit borrower acquisition decisions throughout the life of the contract. Following a financial covenant violation, creditors use their bargaining power to tighten these restrictions and limit acquisition activity, particularly deals expected to earn negative announcement returns. Firms that do announce an acquisition after violating a financial covenant earn 1.8 |$\%$| higher stock returns, on average, and do not pursue less risky deals. We conclude that creditors use contractual rights and the renegotiation process to limit value-destroying acquisitions driven by managerial agency problems. [ABSTRACT FROM AUTHOR]
Additional Information
Copyright of Review of Financial Studies is the property of Oxford University Press / USA and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

banner_970x250 (970x250)

sponsored