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Magnus Blomkvist, Karl Felixson and Anders Loflund
''Do bidders pay cash for underleveraged targets?''
( 2019, Vol. 39 No.1 )
The relationship between acquirer capital structure and the payment choice in acquisitions is well documented. However, the target firm's capital structure has been overlooked. We find that acquisitions of underleveraged targets are more likely to be financed by cash than by equity. A 1% increase of the target firm's deviation from normal leverage decreases the proportion of cash used by 0.76%. We conclude that target firm capital structure is important for the choice of payment.
Keywords: Mergers and acquisitions, method of payment, leverage deviation, credit rating, capital structure
JEL: G3 - Corporate Finance and Governance: General
G2 - Financial Institutions and Services: General
Manuscript Received : Sep 17 2018 Manuscript Accepted : Mar 16 2019

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