Financial Constraints and M&A Performance

This paper examines mergers and acquisitions motivated by financial constraints and inspects the difference between mergers in USA and developing countries. Synergy gain is measured as the cumulative abnormal return of a value‐weighted portfolio of the acquirer and the target around the acquisition announcement. By constructing a financial constraint difference between the target and the acquirer, I find a positive relationship between the financial constraint difference and synergy gains generated from the acquisition. The slope dummy variable for financial constraints difference in developing countries is added to the regression to test for the difference in effects of such constraints for developing countries. It occurred to be positive and significant in explanation of bidder's returns in M&A deals but occurred to be insignificant in explanation of target's abnormal returns. Results are robust for different width of event windows used to measure cumulative abnormal returns