Valuation Effects of Bank Financing in Acquisitions
In a sample of 115 cash tender offers between 1990 and 1996, banks extend financingin 70% of the tender offers and finance the entire tender offer in half of these takeovers. Bank financing of tender offers is more likely when internal cash reserves are low. Acquisitions that are entirely financed by banks are associated with large and significantly positive acquirer announcement returns. Announcement returns are also positively related to the fraction of the acquisition value financed by bank debt. The benefits of bank financing are most important for both poorly performing acquirers and acquirers facing substantial informational asymmetries. The results suggest that bank debt performs an important certification and monitoring role for acquirers in tender offers.