I would like to thank two anonymous referees of The Financial Review and participants at the FMA annual meeting 2008 for helpful comments and suggestions. The usual disclaimer applies.
The Corporate Acquisition Policy of Financially Distressed Firms
Version of Record online: 12 OCT 2009
© 2009, The Eastern Finance Association
Volume 44, Issue 4, pages 603–623, November 2009
How to Cite
Parnes, D. (2009), The Corporate Acquisition Policy of Financially Distressed Firms. Financial Review, 44: 603–623. doi: 10.1111/j.1540-6288.2009.00232.x
- Issue online: 12 OCT 2009
- Version of Record online: 12 OCT 2009
- corporate acquisition;
- strategic acquisition;
- bargaining power;
- binding isotherm function
The paper examines a unique motive for corporate acquisitions among distressed firms: the desire to enhance creditworthiness by both the acquirer and the acquired firms. I develop a theoretical model of the creditworthiness conditions necessary for corporate acquisitions and identify the optimal policy in searching for an acquirer. I distinguish between strategic and nonstrategic acquisitions and find the necessary conditions and most favorable policy for a strategic acquisition to evolve. I demonstrate the importance of the cost of finding an acquirer, the impact of sharing bargaining leverage, and the economic significance of credit quality for the success of the accord.