{"title":"Contingent cash crunch: How do performance commitments affect acquirer liquidity?","authors":"","doi":"10.1016/j.ribaf.2024.102592","DOIUrl":null,"url":null,"abstract":"<div><div>This paper investigates how performance commitment clauses in mergers and acquisitions (M&As) influence the corporate liquidity of acquiring firms. Using a comprehensive dataset of Chinese domestic M&A deals from 2008 to 2021, we find that acquisitions involving performance commitments correspond to lower corporate liquidity for acquirers in subsequent years. Difference-in-differences analysis, instrumental variables, and propensity score matching support a causal relationship. Furthermore, cross-sectional tests reveal that this negative association is amplified for nonstate ownership, weak governance, poor reporting quality, and low financial constraints. We find that performance commitments increase management optimism, providing insights into the mechanisms linking contingent deal structures with suboptimal liquidity policies and heightened financial distress. Our study suggests that the contingent contract structures in M&A deals drain corporate liquidity, leaving firms financially vulnerable.</div></div>","PeriodicalId":51430,"journal":{"name":"Research in International Business and Finance","volume":null,"pages":null},"PeriodicalIF":6.3000,"publicationDate":"2024-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Research in International Business and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0275531924003854","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This paper investigates how performance commitment clauses in mergers and acquisitions (M&As) influence the corporate liquidity of acquiring firms. Using a comprehensive dataset of Chinese domestic M&A deals from 2008 to 2021, we find that acquisitions involving performance commitments correspond to lower corporate liquidity for acquirers in subsequent years. Difference-in-differences analysis, instrumental variables, and propensity score matching support a causal relationship. Furthermore, cross-sectional tests reveal that this negative association is amplified for nonstate ownership, weak governance, poor reporting quality, and low financial constraints. We find that performance commitments increase management optimism, providing insights into the mechanisms linking contingent deal structures with suboptimal liquidity policies and heightened financial distress. Our study suggests that the contingent contract structures in M&A deals drain corporate liquidity, leaving firms financially vulnerable.
期刊介绍：
Research in International Business and Finance (RIBAF) seeks to consolidate its position as a premier scholarly vehicle of academic finance. The Journal publishes high quality, insightful, well-written papers that explore current and new issues in international finance. Papers that foster dialogue, innovation, and intellectual risk-taking in financial studies; as well as shed light on the interaction between finance and broader societal concerns are particularly appreciated. The Journal welcomes submissions that seek to expand the boundaries of academic finance and otherwise challenge the discipline. Papers studying finance using a variety of methodologies; as well as interdisciplinary studies will be considered for publication. Papers that examine topical issues using extensive international data sets are welcome. Single-country studies can also be considered for publication provided that they develop novel methodological and theoretical approaches or fall within the Journal''s priority themes. It is especially important that single-country studies communicate to the reader why the particular chosen country is especially relevant to the issue being investigated. [...] The scope of topics that are most interesting to RIBAF readers include the following: -Financial markets and institutions -Financial practices and sustainability -The impact of national culture on finance -The impact of formal and informal institutions on finance -Privatizations, public financing, and nonprofit issues in finance -Interdisciplinary financial studies -Finance and international development -International financial crises and regulation -Financialization studies -International financial integration and architecture -Behavioral aspects in finance -Consumer finance -Methodologies and conceptualization issues related to finance
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