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
Englisch

Bibliographic citation
Series: Manchester Business School Working Paper ; No. 625

Classification
Wirtschaft
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Asymmetric and Private Information; Mechanism Design
Subject
precautionary motive of cash reserve
excess cash reserve
acquisition
announcement effect
Übernahme
Betriebliche Liquidität
Ankündigungseffekt
Prinzipal-Agent-Theorie
USA

Event
Geistige Schöpfung
(who)
Gao, Ning
Event
Veröffentlichung
(who)
The University of Manchester, Manchester Business School
(where)
Manchester
(when)
2011

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

This object is provided by:
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

Other Objects (12)