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.


In MBA classes, we taught students that cost of capital should be appropriate for the risk of a project which may or may not be the same as the company's weighted average cost of capital. In practice, do firms and lenders follow this recommendation? Based on a hand-matched large sample of banks loans used to finance M&A transactions, our answer is "yes!". However, what are the main drivers of loan price in M&A transactions? Our study only reveals a small part of the answers.

Dr Ning Gao
University of Manchester

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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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