What is it about?
We investigate loan price in mergers and acquisitions (M&As), using hand-matched loan information for a sample of 512 U.S. M&A transactions. We find the relative size of a deal constitutes a prominent determinant of the loan price measured by the all-in spread drawn (AISD). This result is robust to several specifications that address endogeneity concerns. Cross-sectional analyses show that aggravated credit risk and information uncertainty after M&A go some way towards explaining lenders' concerns over large relative deal size. Further analysis demonstrates higher AISD is associated with lower post-transaction performance, indicating loan price factors in the risk of poor post-transaction performance correctly.
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Why is it important?
Dig deep into companies' acquisition financing and understand how large investments shape the price of bank loans.
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This page is a summary of: Loan price in mergers and acquisitions, Journal of Corporate Finance, April 2021, Elsevier, DOI: 10.1016/j.jcorpfin.2020.101754.
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