Syndicated loan lenders' impact on M&A acquirers' post merger operating performance and creditworthiness : evidence in U.S. M&A deals from year 2005 to 2011

Abstract

Financial intermediaries (such as banks) are delegated to monitor borrowers (Diamond, 1984). In the merger wave, many acquirers raise funds by borrowing syndicated loans to fund their M&A deals (Huang, Lu, & Srinivasan, 2012). However, banks’ monitoring of borrowers does not enhance firm value to the extent that the acquirers’ shareholders can benefit (Huang et al., 2012). Based on unadjusted measures, we found that M&A deals financed by syndicated loans experience better post-merger operating performance (ROA) and creditworthiness (Altman’s Z Score and EDF). M&A deals financed by relationship lenders experience better post-merger operating performance (ROA) and creditworthiness (EDF). M&A deals financed by reputable lenders experience better post-merger operating performance (ROA) and creditworthiness (Altman’s Z Score and EDF). However, M&A deals financed by institutional lenders experience worse post-merger operating performance (ROA) and worse creditworthiness (EDF), and transactional lenders have almost no impact on the borrowers’ post-merger operating performance and creditworthiness.