Financial vs. Strategic Buyers

52 Pages Posted: 30 Aug 2013 Last revised: 14 Jun 2023

See all articles by Marc Martos-Vila

Marc Martos-Vila

London Business School - Department of Finance; University of California, Los Angeles (UCLA) - Finance Area

Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Jarrad Harford

University of Washington; European Corporate Governance Institute (ECGI)

Date Written: August 2013

Abstract

This paper introduces the impact of debt misvaluation on merger and acquisition activity. Debt misvaluation helps explain the shifting dominance of financial acquirers (private equity firms) relative to strategic acquirers (operating companies). The effects of overvalued debt might seem limited since both acquirer types and target firms can access the debt markets. However, fundamental differences in governance and project co-insurance between the two types of acquirer interact with debt misvaluation, resulting in variation in how assets are owned that depends on debt market conditions. We find support for our theory in merger data using a novel measure of debt misvaluation.

Suggested Citation

Martos-Vila, Marc and Rhodes-Kropf, Matthew and Harford, Jarrad, Financial vs. Strategic Buyers (August 2013). NBER Working Paper No. w19378, Available at SSRN: https://ssrn.com/abstract=2318281

Marc Martos-Vila (Contact Author)

London Business School - Department of Finance ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States

Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Rock Center 312
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jarrad Harford

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)

HOME PAGE: http://faculty.washington.edu/jarrad/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
189
Abstract Views
1,552
Rank
289,210
PlumX Metrics