Arbeitspapier
What drives bidder cash reserve effects in acquisitions: Agency conflicts or precautionary motive?
A cash-rich company is less likely to be a bidder during 1994-2008 in the US, contrasting the findings based on earlier sample period. This is mainly due to the companies with high residual market-to-book ratios (i.e. the residual of the actual market-to-book ratio regressed on measures of agency conflicts). Higher bidder excess cash reserve reduces bidder return at deal announcement. The negative announcement effect is stronger for bidders of lower asset-tangibility, but insensitive to the level of agency conflicts. Post acquisition, a cash-rich bidder spends more funds on debt reduction, capital expenditure, but less on further acquisitions. Moreover, a cash-rich bidder has better operating performance when its residual market-to-book ratio is high. Our evidence suggests bidder cash reserve effects are more consistent with the precautionary motive than the agency theory. High cash reserve, to a great extent, indicates growth and overvaluation rather than agency conflicts.
- Language
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Englisch
- Bibliographic citation
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Series: Manchester Business School Working Paper ; No. 625
- Classification
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Wirtschaft
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Asymmetric and Private Information; Mechanism Design
- Subject
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precautionary motive of cash reserve
excess cash reserve
acquisition
announcement effect
Übernahme
Betriebliche Liquidität
Ankündigungseffekt
Prinzipal-Agent-Theorie
USA
- Event
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Geistige Schöpfung
- (who)
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Gao, Ning
- Event
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Veröffentlichung
- (who)
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The University of Manchester, Manchester Business School
- (where)
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Manchester
- (when)
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2011
- Handle
- Last update
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10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Gao, Ning
- The University of Manchester, Manchester Business School
Time of origin
- 2011