Capital structure and acquisition decisions: investigation of zero-leveraged firms

Abstract

Using the US mergers and acquisitions (M&A) data between 1990 and 2012, this paper investigates how leverage affects various acquisition decisions More specifically, the paper classify firms into zero-leveraged, under-leveraged, and over-leveraged firms and examine whether the likelihood of undertaking an acquisition, premiums paid at acquisitions, and the method of payments differ across these leverage groups after controlling for other firm characteristics. In addition, the paper examines the relationship between ac-quirer’s and target’s leverages and how the relationship affects the post-acquisition performance. As a result, zero-leveraged (over-leveraged) firms are more (less) likely to use cash in their offer and acquire zero-leveraged target firms.