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| Author: | Smith, R. Kim, J. |
| Title: | The combined effects of free cash flow and financial slack on bidder and target stock returns |
| Journal: | Journal of Business
1994 : APR, VOL. 67:2, p. 281-310 |
| Index terms: | BUSINESS ECONOMICS FINANCE STOCK RETURNS |
| Language: | eng |
| Abstract: | This article examines the extent to which takeovers mitigate the underinvestment problem of Meyers and Majluf and the free-cash-flow problem of Jensen. Using accounting data, bidders are classified as "high free cash flow", "slack poor", or "other". Bidder, target , and total returns are highest for acquisitions that combine slack-poor and free-cash-flow firms. The widely cited negative returns of bidders are concentrated among combinations where bidders and targets are similarly classified. |
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