Research Article
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Year 2019, Volume: 8 Issue: 1, 38 - 52, 30.03.2019
https://doi.org/10.17261/Pressacademia.2019.1014

Abstract

References

  • Altinkilic, O., Hansen, R. S. (2000). Are there economies of scale in underwriting fees? Evidence of rising external financing costs. The Review of Financial Studies, 13(1), 191-218.
  • Amihud, Y., Lev, B. (1981). Risk reduction as a managerial motive for conglomerate mergers. The Bell Journal of Economics, 12(2) 605-617.
  • Antoniou, A., Guney, Y., Paudyal, K. (2008). The determinants of capital structure: capital market-oriented versus bank-oriented institutions. Journal of Financial and Quantitative Analysis, 43(1), 59-92.
  • Auerbach, A. J. (1985). The theory of excess burden and optimal taxation. In Handbook of Public Economics. Elsevier Science Publishers. 1, 61-127.
  • Baker, M., Wurgler, J., (2002). Market timing and capital structure. The Journal of Finance 57, 1-32.
  • Borio, C. E. V. (1990). Leverage and financing of non-financial companies: an international perspective. Bank for International Settlements (BIS), Economic Papers No. 27, 1-82.
  • Byoun, S. (2008). How and when do firms adjust their capital structures toward targets?. The Journal of Finance, 63(6), 3069-3096.
  • Cook, D. O., Tang, T. (2010). Macroeconomic conditions and capital structure adjustment speed. Journal of Corporate Finance, 16(1), 73-87.
  • Fama, E. F., French, K. R. (1997). Industry costs of equity. Journal of Financial Economics, 43(2), 153-193.
  • Fama, E. F., French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15(1), 1-33.
  • Faulkender, M., Flannery, M. J., Hankins, K. W., Smith, J. M. (2012). Cash flows and leverage adjustments. Journal of Financial Economics, 103(3), 632-646.
  • Faulkender, M., Kadyrzhanova, D., Prabhala, N., Senbet, L. (2010). Executive compensation: An overview of research on corporate practices and proposed reforms. Journal of Applied Corporate Finance, 22(1), 107-118.
  • Fischer, E. O., Heinkel, R., Zechner, J. (1989). Dynamic capital structure choice: Theory and tests. The Journal of Finance, 44(1), 19-40.
  • Flannery, M. J., Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469-506.
  • Ghosh, A., Jain, P. C. (2000). Financial leverage changes associated with corporate mergers. Journal of Corporate Finance, 6(4), 377-402.
  • Graham, J. R., Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243.
  • Gugler, K., Konrad, K. A. (2002). Merger target selection and financial structure. University of Vienna and Wissenschaftszentrum Berlin (WZB).
  • Harford, J. (2005). What drives merger waves?. Journal of Financial Economics, 77(3), 529-560.
  • Harford, J., Klasa, S., Walcott, N. (2009). Do firms have leverage targets? Evidence from acquisitions. Journal of Financial Economics, 93(1), 1-14.
  • Higgins, R. C., Schall, L. D. (1975). Corporate bankruptcy and conglomerate merger. The Journal of Finance, 30(1), 93-113.
  • Hovakimian, A. (2006). Are observed capital structures determined by equity market timing?. Journal of Financial and Quantitative Analysis, 41(1), 221-243.
  • Hovakimian, A., Hovakimian, G., Tehranian, H. (2004). Determinants of target capital structure: The case of dual debt and equity issues. Journal of Financial Economics, 71(3), 517-540.
  • Hovakimian, A., Opler, T., Titman, S. (2001). The debt-equity choice. Journal of Financial and Quantitative Analysis, 36(1), 1-24.
  • Huang, R., Ritter, J. R. (2009). Testing theories of capital structure and estimating the speed of adjustment. Journal of Financial and Quantitative Analysis, 44(2), 237-271.
  • Jalilvand, A., Harris, R. S. (1984). Corporate behavior in adjusting to capital structure and dividend targets: An econometric study. The Journal of Finance, 39(1), 127-145.
  • Jarrell, G. A., Brickley, J. A., Netter, J. M. (1988). The market for corporate control: The empirical evidence since 1980. Journal of Economic Perspectives, 2(1), 49-68.
  • Jensen, M. C., Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
  • Kayhan, A., Titman, S. (2007). Firms’ histories and their capital structures. Journal of Financial Economics, 83(1), 1-32.
  • Leary, M. T., Roberts, M. R. (2005). Do firms rebalance their capital structures?. The Journal of Finance, 60(6), 2575-2619.
  • Leland, H. E. (2007). Financial synergies and the optimal scope of the firm: Implications for mergers, spinoffs, and structured finance. The Journal of Finance, 62(2), 765-807.
  • Lewellen, W. G. (1971). A pure financial rationale for the conglomerate merger. The Journal of Finance, 26(2), 521-537.
  • Lintner, J. (1971). Expectations, mergers and equilibrium in purely competitive securities markets. The American Economic Review, 61(2), 101-111.
  • Mai, Y., Meng, L., Ye, Z. (2017). Regional variation in the capital structure adjustment speed of listed firms: Evidence from China. Economic Modelling, 64, 288-294.
  • Markham, J. W. (1973). Conglomerate Enterprise and Economic Performance. Cambridge, MA: Harvard University Press.
  • Marsh, P. (1982). The choice between equity and debt: An empirical study. The Journal of Finance, 37(1), 121-144.
  • Mitchell, M., Mulherin, H. (1996). The impact of industry shocks on takeover and restructuring activity. Journal of Financial Economics 41, 193-230.
  • Mittoo, U. R., Zhang, Z. (2008). The capital structure of multinational corporations: Canadian versus US evidence. Journal of Corporate Finance, 14(5), 706-720.
  • Moatti, V., Ren, C. R., Anand, J., Dussauge, P. (2015). Disentangling the performance effects of efficiency and bargaining power in horizontal growth strategies: An empirical investigation in the global retail industry. Strategic Management Journal, 36(5), 745-757.
  • Modigliani, F., Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American Economic Review, 53(3), 433-443.
  • Mueller, D. C. (1977). The effects of conglomerate mergers: A survey of the empirical evidence. Journal of Banking & Finance, 1(4), 315-347.
  • Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
  • Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592.
  • Opler, T. C., Titman, S. (1994). Financial distress and corporate performance. The Journal of Finance, 49(3), 1015-1040.
  • Oztekin, O., Flannery, M. J. (2012). Institutional determinants of capital structure adjustment speeds. Journal of Financial Economics, 103(1), 88-112.
  • Qian, Y., Tian, Y., Wirjanto, T. S. (2009). Do Chinese publicly listed companies adjust their capital structure toward a target level?. China Economic Review, 20(4), 662-676.
  • Rajan, R. G., Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-1460.
  • Ross, S. A. (1977). The determination of financial structure: the incentive-signalling approach. The Bell Journal of Economics, 23-40.
  • Schwartz, E., Aronson, J. R. (1967). Some surrogate evidence in support of the concept of optimal financial structure. The Journal of Finance, 22(1), 10-18.
  • Scott, J. H. (1977). On the theory of conglomerate mergers. The Journal of Finance, 32(4), 1235-1250.
  • Shyam-Sunder, L., Myers, S. C. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51(2), 219-244.
  • Smith, D. J., Chen, J., Anderson, H. D. (2015). The influence of firm financial position and industry characteristics on capital structure adjustment. Accounting & Finance, 55(4), 1135-1169.
  • Staikouras, S. K. (2006). Business opportunities and market realities in financial conglomerates. The Geneva Papers on Risk and Insurance-Issues and Practice, 31(1), 124-148.
  • Stoja, E., Tucker, J. (2007). Long and short-run capital structure dynamics in the UK-an industry level study. SSRN Electronic Journal. 10.2139/ssrn.1045101
  • Stulz, R. (1990). Managerial discretion and optimal financing policies. Journal of Financial Economics, 26(1), 3-27.
  • Taggart Jr, R. A. (1977). A model of corporate financing decisions. The Journal of Finance, 32(5), 1467-1484.
  • Titman, S. (1984). The effect of capital structure on a firm's liquidation decision. Journal of Financial Economics, 13(1), 137-151.
  • Titman, S., Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.
  • Uysal, V. B. (2011). Deviation from the target capital structure and acquisition choices. Journal of Financial Economics, 102(3), 602-620.
  • Vermaelen, T., Xu, M. (2012). Acquisition finance, capital structure and market timing. Working Paper, Institut Europeen d'Administration (INSEAD), London School of Economics.
  • Warr, R. S., Elliott, W. B., Koeter-Kant, J., Oztekin, O. (2012). Equity mispricing and leverage adjustment costs. Journal of Financial and Quantitative Analysis, 47(3), 589-616.
  • Weston, J. F. (2001). Merger and Acquisitions as Adjustment Processes. Journal of Industry, Competition and Trade, 1(4), 395-410.
  • Yang, T. (2011). The adjustment of capital structure in mergers and acquisitions: a revisit of the optimal capital structure. Working Paper. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.557.477&rep=rep1&type=pdf
  • Zhou, Q., Tan, K. J. K., Faff, R., Zhu, Y. (2016). Deviation from target capital structure, cost of equity and speed of adjustment. Journal of Corporate Finance, 39, 99-120.

SPEED OF ADJUSTMENT TOWARD CAPITAL STRUCTURE IN CROSS BORDER AND CROSS INDUSTRY MERGERS AND ACQUISITIONS

Year 2019, Volume: 8 Issue: 1, 38 - 52, 30.03.2019
https://doi.org/10.17261/Pressacademia.2019.1014

Abstract

Purpose - In this study, the speed of adjustment (SOA) toward target capital structure is investigated in cross border and cross industry mergers and acquisitions (M&A).
Methodology - As a measure of capital structure both book leverage (BLEV) and market leverage (MLEV) ratios are used in the analysis. The sample consists of 6,520 M&A deals for the period of 2000-2016.
Findings - The findings show that for both the BLEV and MLEV, the cross border M&A deals move faster toward the target capital structure compared to non-cross border M&A deals. While the SOA rate for the same and cross industry M&A cases does not show too much difference for BLEV and MLEV.
Conclusion - Overall the firms adjust to their target capital structure in maximum three years following the M&A

References

  • Altinkilic, O., Hansen, R. S. (2000). Are there economies of scale in underwriting fees? Evidence of rising external financing costs. The Review of Financial Studies, 13(1), 191-218.
  • Amihud, Y., Lev, B. (1981). Risk reduction as a managerial motive for conglomerate mergers. The Bell Journal of Economics, 12(2) 605-617.
  • Antoniou, A., Guney, Y., Paudyal, K. (2008). The determinants of capital structure: capital market-oriented versus bank-oriented institutions. Journal of Financial and Quantitative Analysis, 43(1), 59-92.
  • Auerbach, A. J. (1985). The theory of excess burden and optimal taxation. In Handbook of Public Economics. Elsevier Science Publishers. 1, 61-127.
  • Baker, M., Wurgler, J., (2002). Market timing and capital structure. The Journal of Finance 57, 1-32.
  • Borio, C. E. V. (1990). Leverage and financing of non-financial companies: an international perspective. Bank for International Settlements (BIS), Economic Papers No. 27, 1-82.
  • Byoun, S. (2008). How and when do firms adjust their capital structures toward targets?. The Journal of Finance, 63(6), 3069-3096.
  • Cook, D. O., Tang, T. (2010). Macroeconomic conditions and capital structure adjustment speed. Journal of Corporate Finance, 16(1), 73-87.
  • Fama, E. F., French, K. R. (1997). Industry costs of equity. Journal of Financial Economics, 43(2), 153-193.
  • Fama, E. F., French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15(1), 1-33.
  • Faulkender, M., Flannery, M. J., Hankins, K. W., Smith, J. M. (2012). Cash flows and leverage adjustments. Journal of Financial Economics, 103(3), 632-646.
  • Faulkender, M., Kadyrzhanova, D., Prabhala, N., Senbet, L. (2010). Executive compensation: An overview of research on corporate practices and proposed reforms. Journal of Applied Corporate Finance, 22(1), 107-118.
  • Fischer, E. O., Heinkel, R., Zechner, J. (1989). Dynamic capital structure choice: Theory and tests. The Journal of Finance, 44(1), 19-40.
  • Flannery, M. J., Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469-506.
  • Ghosh, A., Jain, P. C. (2000). Financial leverage changes associated with corporate mergers. Journal of Corporate Finance, 6(4), 377-402.
  • Graham, J. R., Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243.
  • Gugler, K., Konrad, K. A. (2002). Merger target selection and financial structure. University of Vienna and Wissenschaftszentrum Berlin (WZB).
  • Harford, J. (2005). What drives merger waves?. Journal of Financial Economics, 77(3), 529-560.
  • Harford, J., Klasa, S., Walcott, N. (2009). Do firms have leverage targets? Evidence from acquisitions. Journal of Financial Economics, 93(1), 1-14.
  • Higgins, R. C., Schall, L. D. (1975). Corporate bankruptcy and conglomerate merger. The Journal of Finance, 30(1), 93-113.
  • Hovakimian, A. (2006). Are observed capital structures determined by equity market timing?. Journal of Financial and Quantitative Analysis, 41(1), 221-243.
  • Hovakimian, A., Hovakimian, G., Tehranian, H. (2004). Determinants of target capital structure: The case of dual debt and equity issues. Journal of Financial Economics, 71(3), 517-540.
  • Hovakimian, A., Opler, T., Titman, S. (2001). The debt-equity choice. Journal of Financial and Quantitative Analysis, 36(1), 1-24.
  • Huang, R., Ritter, J. R. (2009). Testing theories of capital structure and estimating the speed of adjustment. Journal of Financial and Quantitative Analysis, 44(2), 237-271.
  • Jalilvand, A., Harris, R. S. (1984). Corporate behavior in adjusting to capital structure and dividend targets: An econometric study. The Journal of Finance, 39(1), 127-145.
  • Jarrell, G. A., Brickley, J. A., Netter, J. M. (1988). The market for corporate control: The empirical evidence since 1980. Journal of Economic Perspectives, 2(1), 49-68.
  • Jensen, M. C., Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
  • Kayhan, A., Titman, S. (2007). Firms’ histories and their capital structures. Journal of Financial Economics, 83(1), 1-32.
  • Leary, M. T., Roberts, M. R. (2005). Do firms rebalance their capital structures?. The Journal of Finance, 60(6), 2575-2619.
  • Leland, H. E. (2007). Financial synergies and the optimal scope of the firm: Implications for mergers, spinoffs, and structured finance. The Journal of Finance, 62(2), 765-807.
  • Lewellen, W. G. (1971). A pure financial rationale for the conglomerate merger. The Journal of Finance, 26(2), 521-537.
  • Lintner, J. (1971). Expectations, mergers and equilibrium in purely competitive securities markets. The American Economic Review, 61(2), 101-111.
  • Mai, Y., Meng, L., Ye, Z. (2017). Regional variation in the capital structure adjustment speed of listed firms: Evidence from China. Economic Modelling, 64, 288-294.
  • Markham, J. W. (1973). Conglomerate Enterprise and Economic Performance. Cambridge, MA: Harvard University Press.
  • Marsh, P. (1982). The choice between equity and debt: An empirical study. The Journal of Finance, 37(1), 121-144.
  • Mitchell, M., Mulherin, H. (1996). The impact of industry shocks on takeover and restructuring activity. Journal of Financial Economics 41, 193-230.
  • Mittoo, U. R., Zhang, Z. (2008). The capital structure of multinational corporations: Canadian versus US evidence. Journal of Corporate Finance, 14(5), 706-720.
  • Moatti, V., Ren, C. R., Anand, J., Dussauge, P. (2015). Disentangling the performance effects of efficiency and bargaining power in horizontal growth strategies: An empirical investigation in the global retail industry. Strategic Management Journal, 36(5), 745-757.
  • Modigliani, F., Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American Economic Review, 53(3), 433-443.
  • Mueller, D. C. (1977). The effects of conglomerate mergers: A survey of the empirical evidence. Journal of Banking & Finance, 1(4), 315-347.
  • Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
  • Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592.
  • Opler, T. C., Titman, S. (1994). Financial distress and corporate performance. The Journal of Finance, 49(3), 1015-1040.
  • Oztekin, O., Flannery, M. J. (2012). Institutional determinants of capital structure adjustment speeds. Journal of Financial Economics, 103(1), 88-112.
  • Qian, Y., Tian, Y., Wirjanto, T. S. (2009). Do Chinese publicly listed companies adjust their capital structure toward a target level?. China Economic Review, 20(4), 662-676.
  • Rajan, R. G., Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-1460.
  • Ross, S. A. (1977). The determination of financial structure: the incentive-signalling approach. The Bell Journal of Economics, 23-40.
  • Schwartz, E., Aronson, J. R. (1967). Some surrogate evidence in support of the concept of optimal financial structure. The Journal of Finance, 22(1), 10-18.
  • Scott, J. H. (1977). On the theory of conglomerate mergers. The Journal of Finance, 32(4), 1235-1250.
  • Shyam-Sunder, L., Myers, S. C. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51(2), 219-244.
  • Smith, D. J., Chen, J., Anderson, H. D. (2015). The influence of firm financial position and industry characteristics on capital structure adjustment. Accounting & Finance, 55(4), 1135-1169.
  • Staikouras, S. K. (2006). Business opportunities and market realities in financial conglomerates. The Geneva Papers on Risk and Insurance-Issues and Practice, 31(1), 124-148.
  • Stoja, E., Tucker, J. (2007). Long and short-run capital structure dynamics in the UK-an industry level study. SSRN Electronic Journal. 10.2139/ssrn.1045101
  • Stulz, R. (1990). Managerial discretion and optimal financing policies. Journal of Financial Economics, 26(1), 3-27.
  • Taggart Jr, R. A. (1977). A model of corporate financing decisions. The Journal of Finance, 32(5), 1467-1484.
  • Titman, S. (1984). The effect of capital structure on a firm's liquidation decision. Journal of Financial Economics, 13(1), 137-151.
  • Titman, S., Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.
  • Uysal, V. B. (2011). Deviation from the target capital structure and acquisition choices. Journal of Financial Economics, 102(3), 602-620.
  • Vermaelen, T., Xu, M. (2012). Acquisition finance, capital structure and market timing. Working Paper, Institut Europeen d'Administration (INSEAD), London School of Economics.
  • Warr, R. S., Elliott, W. B., Koeter-Kant, J., Oztekin, O. (2012). Equity mispricing and leverage adjustment costs. Journal of Financial and Quantitative Analysis, 47(3), 589-616.
  • Weston, J. F. (2001). Merger and Acquisitions as Adjustment Processes. Journal of Industry, Competition and Trade, 1(4), 395-410.
  • Yang, T. (2011). The adjustment of capital structure in mergers and acquisitions: a revisit of the optimal capital structure. Working Paper. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.557.477&rep=rep1&type=pdf
  • Zhou, Q., Tan, K. J. K., Faff, R., Zhu, Y. (2016). Deviation from target capital structure, cost of equity and speed of adjustment. Journal of Corporate Finance, 39, 99-120.
There are 63 citations in total.

Details

Primary Language English
Subjects Economics, Behaviour-Personality Assessment in Psychology, Finance, Business Administration
Journal Section Articles
Authors

İrfan U. Shah This is me 0000-0001-7064-0036

M. Banu Durukan 0000-0002-3619-2732

Publication Date March 30, 2019
Published in Issue Year 2019 Volume: 8 Issue: 1

Cite

APA Shah, İ. U., & Durukan, M. B. (2019). SPEED OF ADJUSTMENT TOWARD CAPITAL STRUCTURE IN CROSS BORDER AND CROSS INDUSTRY MERGERS AND ACQUISITIONS. Journal of Business Economics and Finance, 8(1), 38-52. https://doi.org/10.17261/Pressacademia.2019.1014

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