Does the threat of takeover affect default risk?
Balachandran, B.; Duong, H. N.; van Zijl, T.; Zudana, Arfian
View fulltext online
Citation:Balachandran, B., Duong, H. N., van Zijl, T., & Zudana, A. E. (2022). Does the threat of takeover affect default risk?. Journal of Business Finance & Accounting, 00, 1– 40. doi:https://doi.org/10.1111/jbfa.12668
Permanent link to Research Bank record:https://hdl.handle.net/10652/6122
We examine the impact of the threat of takeovers on default risk. Using a sample of 50,189 firm-year observations for US firms over the period 1990–2015, we find that the threat of takeovers has a negative relation with default risk. We use difference-in-difference analysis to address potential endogeneity concerns and propensity score matching to control for self-selection bias. The results are robust to alternative measures of default risk and exclusion of the dot com and financial crisis periods. Our results also hold after controlling for Governance Index and Entrenchment Index. We identify improvement in performance and earnings quality in response to the threat of takeovers as channels underlying our main result. The effect of the threat of takeovers on default risk is more pronounced for firms with opaque information environment and low institutional ownership. Our findings provide important insights for the market for corporate control as a disciplining mechanism in reducing default risk.
Keywords:United States, corporate management, consolidation and merger of corporations, default risks
ANZSRC Field of Research:3507 Strategy, management and organisational behaviour
Except where otherwise noted, this item's license is described as Attribution-NonCommercial-NoDerivatives 4.0 International
Rights:This digital work is protected by copyright. It may be consulted by you, provided you comply with the provisions of the Act and the following conditions of use. These documents or images may be used for research or private study purposes. Whether they can be used for any other purpose depends upon the Copyright Notice above. You will recognise the author's and publishers rights and give due acknowledgement where appropriate.
MetadataShow detailed record
This item appears in
The following license files are associated with this item: