Loading...
Why do over-deviated firms from target leverage undertake foreign acquisitions?
Ahmed, Y. Elshandidy, Tamer
Ahmed, Y.
Elshandidy, Tamer
Publication Date
2018-04
End of Embargo
Supervisor
Rights
© 2017 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-Reviewed
Yes
Open Access status
openAccess
Accepted for publication
21/08/2017
Institution
Department
Awarded
Embargo end date
Collections
Additional title
Abstract
This paper examines how deviation from firms’ target leverage influences their decisions on undertaking foreign acquisitions. Using a sample of 5,746 completed bids by UK acquirers from 1987 to 2012, we observe that over-deviated firms are more likely to acquire foreign targets. Consistent with co-insurance theory, we find that over-deviated firms engage in foreign acquisition deals to relieve their financial constraints and to mitigate their financial distress risk. We also note that foreign acquisitions enhance over-deviated firms’ value and performance, measured by Tobin’s q and return on assets (ROA) respectively. These findings support the view that over-deviated firms pursue the most value-enhancing acquisitions. Overall, this paper suggests that co-insurance effects, value creation and performance improvements are the main incentives for over-deviated firms’ involvement in foreign acquisitions.
Version
Accepted manuscript
Citation
Ahmed Y and Elshandidy T (2018) Why do over-deviated firms from target leverage undertake foreign acquisitions? International Business Review. 27(2): 309-327.
Link to publisher’s version
Link to published version
Link to Version of Record
Type
Article