Cash windfalls and acquisitions Bastian von Beschwitz
Material type:
TextSeries: Journal of Financial Economics ; 128 (2)Publication details: Amsterdam Elsevier May 2018Description: Pages 287-319ISSN: - 0304-405X
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Abstract
This article studies the effect of cash windfalls on the acquisition policy of companies. As identification, I use a German tax reform that permitted firms to sell their equity stakes tax free. Companies that could realize a cash windfall by selling equity stakes see an increase in the probability of acquiring another company by 14%. I find that these additional acquisitions destroy firm value. Following the tax reform, affected firms experience a decrease of 1.2 percentage points in acquisition announcement returns. These effects are stronger for larger cash windfalls. My findings are consistent with the free cash flow theory.
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