Journal article
Creditor Control of Corporate Acquisitions
The Review of financial studies, v 35(4), pp 1897-1932
21 Mar 2022
Abstract
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.
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Details
- Title
- Creditor Control of Corporate Acquisitions
- Creators
- David A. Becher - Drexel UniversityThomas P. Griffin - Villanova UniversityGreg Nini - Drexel University
- Publication Details
- The Review of financial studies, v 35(4), pp 1897-1932
- Publisher
- Oxford Univ Press
- Number of pages
- 36
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Finance
- Web of Science ID
- WOS:000764398900001
- Scopus ID
- 2-s2.0-85127921873
- Other Identifier
- 991019168960804721
InCites Highlights
Data related to this publication, from InCites Benchmarking & Analytics tool:
- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Business, Finance
- Economics