eThesis - Kauppakorkeakoulun sähköiset gradut

Objective of the thesis Harford and Uysal (2014) suggest that the access to public bond markets relaxes financial constraints optimally enabling companies to undertake more of their profitable acquisition opportunities in the United States. Rated companies are more active acquirers, bid more aggressively for their public targets and experience only slightly lower announcement returns in domestic deals. The primary objective of this study is to provide a relevant point of comparison for the original US findings by investigating the impact of bond market access on M&A activity in Europe, where corporate borrowing has traditionally relied more on private sources of debt capital. I extend the original empirical setup by accounting for actual debt capital market securities outstanding instead of using credit ratings as a proxy and include cross-border acquisitions in the analyses in order to capture the complete effect of public bond market access on acquisition activity in Europe.

Data and methodology The initial data set of this study consists of 41,744 financial year observations of 4,661 public companies in EU-15 countries, Norway and Switzerland, downloaded from Thomson One database. It is further complemented with the data on 8,219 bond issues and 6,231 M&A transactions by these companies, downloaded from SDC databases. In addition to univariate tests, I analyze the impact of bond market access on acquisition likelihood using probit regressions. I account for the cumulative and relative sizes of the observed deals employing Tobit regressions. Finally, I run regular OLS regressions in the tests of bid premiums and acquirers' announcement returns.

Empirical findings European companies with public bonds outstanding have 2.9% higher yearly acquisition likelihood and 0.9% higher yearly asset-adjusted deal values than other companies. The findings compare well with Harford and Uysal (2014), but the magnitude of the phenomenon is somewhat smaller, which is consistent with the lower importance of bond financing in Europe. The findings hold in the subsample of large companies as well as after accounting for the probability of having bonds outstanding. Also, I find moderate evidence that the European acquisition likelihood effect may be related mainly to riskier cross-border deals. Unlike in the United States, bond market acquirers do not pay higher premiums or experience robustly lower announcement returns. Overall, European bond market companies appear to be capable of exhausting more of their profitable acquisition opportunities without significant adverse effects on acquisition quality.