Why do over-deviated firms from target leverage undertake foreign acquisitions?
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- Dr Yousry Ahmed
|Author(s)||Ahmed Y, Elshandidy T|
|Publication type ||Article|
|Journal||International Business Review|
|Full text for this publication is not currently held within this repository. Alternative links are provided below where available.|
|This paper examines how deviation from firms’ target leverage influences their decisions on undertaking foreign acquisitions. Using a sample of 5746 completed bids by UK acquirers from 1987 to 2012, we observe that overdeviated firms are more likely to acquire foreign targets. Consistent with co-insurance theory, we find that overdeviated firms engage in foreign acquisition deals to relieve their financial constraints and to mitigate their financial distress risk. We also note that foreign acquisitions enhance over-deviated firms’ value and performance, measured by Tobin’s q and return on assets (ROA) respectively. These findings support the view that over-deviated firms pursue the most value-enhancing acquisitions. Overall, this paper suggests that co-insurance effects, value creation and performance improvements are the main incentives for over-deviated firms’ involvement in foreign acquisitions.|