Why do over-deviated firms from target leverage undertake foreign acquisitions?

Ahmed, Yousry and Elshandidy, Tamer (2018) Why do over-deviated firms from target leverage undertake foreign acquisitions? International Business Review, 27 (2). pp. 309-327. ISSN 0969-5931

[img] Text
Ahmed, Elshandidy - Why do over-deviated firms from target leverage undertake foreign acquisitions.pdf - Accepted Version
Restricted to Repository staff only until 30 February 2019.

Download (815kB)
Official URL: https://doi.org/10.1016/j.ibusrev.2017.08.005

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.

Item Type: Article
Uncontrolled Keywords: Leverage deviation, Co-insurance theory, Global diversification, Financial constraints, Default risk, Firm value, Operating performance
Subjects: N100 Business studies
Department: Faculties > Business and Law > Newcastle Business School > Business and Management
Depositing User: Paul Burns
Date Deposited: 23 Aug 2017 14:40
Last Modified: 13 Apr 2018 21:27
URI: http://nrl.northumbria.ac.uk/id/eprint/31650

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics


Policies: NRL Policies | NRL University Deposit Policy | NRL Deposit Licence