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| Author: | Bowers, H. |
| Title: | Signaling, financial slack and corporate acquisitions |
| Journal: | Review of Quantitative Finance and Accounting
2000 : NOV, VOL. 15:3, p. 195-216 |
| Index terms: | MERGERS ASYMMETRIC INFORMATION SIGNALING |
| Language: | eng |
| Abstract: | This paper shows that under certain conditions a firm's decision concerning the optimal medium of exchange to use in acquiring another firm is related to the decision of which source of capital should be used to finance long-term projects. An example of this type of interaction occurs when the firm's only source of financing a positive net present value project is an equity issue. In a Myers and Majluf (1984) world of asymmetric information the value maximizing strategy for the firm is to forego the public equity offering and instead use a stock offer to acquire a firm possessing financial slack. |
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