Financial slack, method of payment and acquirer performance: The case of cross-border acquisitions into Africa

ABSTRACT This paper examines the influence of financial slack on the method of payment and financial performance of acquirers targeting African firms. Using panel data estimation techniques and controlling for, inter alia, firm and deal specific factors, we find no evidence that financial slack has a statistically significant influence on the means of payment. However, firms with high leverage have a higher propensity to acquire a target by using cash. Furthermore, we document a weak association between financial slack and acquirer post-acquisition performance. When we classify firms in terms of the degree of financial slack and considering the method of payment, we find that firms with a low degree of financial slack generate negative long-run operating returns. These results are consistent across the method of payment used. Conversely, firms with a high degree of financial slack that use cash and a combination of financing sources yield positive and statistically significant long-run operating returns. We further show that undervalued firms are significantly more likely to use cash as a form of payment.