Family firms and the choice of payment method in domestic and international acquisitions

Auteur : Houssam BOUZGARROU, Patrick NAVATTE

Date de parution : été 2014

Volume 18 - Numéro 4 - Pages 107-124

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Firmes familiales et choix de la méthode de paiement
lors d’acquisitions domestiques et internationales


Firmas familiares y elección del método de pago en casos de
adquisiciones locales e internacionales


Abstract
This paper investigates the impact of
family control on domestic and international
acquisition’s payment. This effect
is important to understand since it will
underpin all the future financial flexibility
of the merged firms in a context of accelerating
international market integration. We
find that the percentage of cash payment
in acquisitions is positively associated with
family voting rights, but we highlight that
family wedge is negatively associated with
cash payment, which indicates the important
role of control-enhancing mechanisms.
Dilution risk is crucial at an intermediate
level of control, since this relationship is
nonlinear. Moreover, we show that both
unused debt capacity and the increase in
debt capacity are used by family firms to
finance the relevant deals, but that these
firms become overleveraged after merging,
losing some financial flexibility in
exchange for equity control purposes.



Keywords: Acquisitions, method of payment,
family firms, leverage target, firm
misevaluation

Family firms and the choice of payment method in domestic and international acquisitions

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Résumé

Firmes familiales et choix de la méthode de paiement
lors d’acquisitions domestiques et internationales

Firmas familiares y elección del método de pago en casos de
adquisiciones locales e internacionales

Abstract
This paper investigates the impact of
family control on domestic and international
acquisition’s payment. This effect
is important to understand since it will
underpin all the future financial flexibility
of the merged firms in a context of accelerating
international market integration. We
find that the percentage of cash payment
in acquisitions is positively associated with
family voting rights, but we highlight that
family wedge is negatively associated with
cash payment, which indicates the important
role of control-enhancing mechanisms.
Dilution risk is crucial at an intermediate
level of control, since this relationship is
nonlinear. Moreover, we show that both
unused debt capacity and the increase in
debt capacity are used by family firms to
finance the relevant deals, but that these
firms become overleveraged after merging,
losing some financial flexibility in
exchange for equity control purposes.


Keywords: Acquisitions, method of payment,
family firms, leverage target, firm
misevaluation

Informations complémentaires

Auteur(s) Houssam BOUZGARROU, Patrick NAVATTE
Numéro 4
Pages 107-124
Année de publication 2014
Volume 18
Season été
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