Targeting capital structure: the relationship between risky debt and the firm's likelihood of being acquired
Article Abstract:
Transfers of wealth from bidder and target equity-holders in a takeover to target debt-holders can take place when target debt is co-insured by the assets of the bidder or the synergy itself. Such transfers cut bidder and target shareholder gains and could undermine the acquisition. A study was conducted to further clarify the relationship between the takeover likelihood of a firm and the co-insurance potential of its debt. The credit rating of the firm is used to isolate the influence of relatively risky leverage from leverage in general. Results showed that takeover likelihood is minimized in the amount of relatively risky debt outstanding. This supports the assumption that the takeover likelihood of a firm becomes lower as the co-insurance potential of its debt rises. This co-insurance deterrent is greatest during the 1985-1990 timeframe and for firms with public debt outstanding.
Publication Name: The Journal of Business
Subject: Business, general
ISSN: 0021-9398
Year: 1996
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The impact of dividend initiation on information content of earnings announcements and returns volatility
Article Abstract:
The effects of initiating cash dividends on quarterly earnings announcements and market volatility are examined. The informational content of earnings statements drops after the initiation of dividends, so cash dividends may act as an information substitute. Daily return volatility also drops after the initiation of dividends which means that investors may begin to place less weight on other economic indicators after the initiation of dividends.
Publication Name: The Journal of Business
Subject: Business, general
ISSN: 0021-9398
Year: 1989
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