MAs_Covenants_FRL_Jan_28_2022_Final.pdf (413.26 kB)
Commitment or constraint? The effect of loan covenants on merger and acquisition activity
journal contribution
posted on 2023-06-10, 02:40 authored by Gene Ambrocio, Gonal ColakGonal Colak, Iftekhar HasanWe investigate how loan covenants associated with potential target firms affect takeover deals. We propose two possible channels. Under a discipline channel, the target firm becomes an attractive candidate for takeovers and merger deals are facilitated. Under a constraint channel, covenants hinder merger activity. We find support for the latter channel. Takeover likelihood is lower, deal failures are more common, the likelihood of price renegotiation is higher, and acquisition premium is lower when the target is bound by covenants. Covenant tightness exacerbates this effect.
History
Publication status
- Published
File Version
- Accepted version
Journal
Finance Research LettersISSN
1544-6123Publisher
ElsevierExternal DOI
Article number
a102711Department affiliated with
- Accounting and Finance Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2022-02-22First Open Access (FOA) Date
2023-02-01First Compliant Deposit (FCD) Date
2022-02-21Usage metrics
Categories
No categories selectedKeywords
Licence
Exports
RefWorks
BibTeX
Ref. manager
Endnote
DataCite
NLM
DC