The Impact of Capital Structure and Financial Media on Mergers & Acquisitions

Abstract

This thesis explores the impact of capital structure and financial media on Mergers and Acquisitions. The empirical evidence on this thesis demonstrates that firm’s capital structure and financial media are both significantly related to the M&A success and M&A performances. Chapter 3 empirically investigates the interaction between a bidder’s capital structure and the probability of M&A success. It suggests that bidders with great leverage deficit are less likely to be successful in M&A. The potential explanation is that overleveraged bidders are unable to provide attractive takeover offers with high premiums and thus reducing the probability of success. Chapter 4 further studies the implications of capital structure theory for M&A. The empirical evidence shows that bidder’s leverage deficit is negatively related to the probability of using pure cash payment. This implies that firms may actively rebalance their financial leverage to optimal level through M&A. Overleveraged bidders are less likely to use cash payment since they are willing to reduce their deficit level by acquiring targets with equity. By contrast, underleveraged bidders have more incentive to use cash payment because they tend to increase their debt level. Chapter 4 also shows that bidder’s capital structure has large impact on the merging firms’ stock performances in both short term and long term. Therefore bidder’s capital structure is considered as an important determinant for M&A performance. In addition, Chapter 5 further examines the relation between M&A performance and financial media. It reports that bidders with positive media attitude in pre-merger period are significantly outperformance than those with negative media attitude. It concludes that the pre-merger news released by influential financial media has large impact on market reactions to M&A announcements. Furthermore, the empirical evidence suggests that financial media is able to partially predict merging firm’s long term stock performance. Overall, our research in this thesis contributes to the literature with conclusive evidence that the considerations of capital structure and financial media provide further understandings with M&A performances.