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M&A activity and the capital structure of target firms
Flannery, M. J. ; Hanousek, Jan ; Shamshur, Anastasiya ; Trešl, Jiří
Using a large sample of European acquisitions, we find that acquired firms substantially close the gap between their actual and optimal leverage ratios. The bulk of this adjustment occurs quite rapidly – within a year of the acquisition. The typical over-levered firm adjusts its debtto-assets ratio from 34.4% in the year before acquisition to 20% in the year after. (The adjustment is smaller, but still quite rapid, for targets that had been under-leveraged.) These adjustments occur primarily through debt issuances or retirements. We also investigate whether target firms’ pre-merger leverage contributes to the probability of them being acquired. We find that firms further away from their optimal leverage are more likely to be acquired: for an average firm, an increase in the absolute leverage deviation from 1% to 10% of total assets increases the probability of being acquired by 4.1% to 5.6% (The larger effect applies to overleveraged firms.) Overall, our results provide support for the trade-off theory of capital structure and suggest that financial synergies have a significant role in the typical European acquisition decision.
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Firm efficiency, foreign ownership and CEO gender in corrupt environments
Hanousek, Jan ; Shamshur, Anastasiya ; Trešl, Jiří
We study the effects of corruption on firm efficiency using a unique dataset of private firms from 14 Central and Eastern European countries from 2000 to 2013. We find that an environment characterized by a high level of corruption has an adverse effect on firm efficiency. This effect is stronger for firms with a lower propensity to behave corruptly, such as foreign-controlled firms and firms managed by female CEOs, while local firms and firms with male CEOs are not disadvantaged. We also find that an environment characterized by considerable heterogeneity in the perception of corruption is associated with an increase in firm efficiency. This effect is particularly strong for foreign-controlled firms from low corruption countries, while no effect is observed for firms managed by a female CEO.
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Asymmetries in the firm’s use of debt to changing market values
Ferris, S. P. ; Hanousek, Jan ; Shamshur, Anastasiya ; Trešl, Jiří
Using a large sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage relative to market leverage only when the changes in market leverage are due to increases in the value of the firm’s equity. No adjustment is observed when firm equity values decrease. We observe a number of interesting differences between those firms that make large and small capital structure adjustments in response to changing equity prices. Our results are consistent with Barclay, Morellec and Smith (2006) who argue that the optimal level of debt decreases in the presence of corporate growth options.
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To bribe or not to bribe? Corruption uncertainty and corporate practices
Hanousek, Jan ; Shamshur, Anastasiya ; Trešl, Jiří
Using a large sample of private firms over the period from 2001 to 2013, we study the effect of corruption uncertainty on corporate investments and cash holdings. We find that a higher uncertainty about the level of corruption is associated with lower corporate investments and lower cash holdings. These results are sensitive to the ownership structure of a firm. Firms with no foreign majority ownership appear to be more sensitive to corruption-induced uncertainty than majority-controlled foreign firms. They significantly decrease their investments and cash holdings. We hypothesize that they move their cash off-balance-sheet to create cash reserves as the uncertainty of when, whom, and how much to bribe increases.
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Essays on Capital Structure Stability
Shamshur, Anastasiya ; Hanousek, Jan (advisor) ; Švejnar, Jan (referee) ; Estrin, Saul (referee)
Recent financial literature claims that capital structure of firms stays unchanged during the long periods of time. In my dissertation I investigate the question of capital structure stability from different angles. First chapter asks whether the macroeconomic volatility could be translated to capital structure adjustments. To answer this question I consider CEE countries during 1996 to 2006 period since those economies went through extensive economic changes including transition from central planning to market economy, large-scale privatization, and substantial economic reforms to become the EU member. Surprisingly, macroeconomic changes are not translated to capital structure changes. Therefore, second chapter focuses on causes of such puzzling behavior. I find that credit constraints firms face in obtaining finance are responsible for the observed pattern. Unconstrained firms are more active in adjusting their capital structure in response to economic changes. Moreover, firm's ownership plays an important role in explaining leverage of unconstrained firms. Third chapter studies changes in leverage in the context of M&As. I compare the leverage of both acquiring and acquired firms using difference-in-differences propensity score technique. I find that there is an increase in the leverage of...
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