Evidence from Corporate Mergers: Leverage, Industry Characteristics and Returns’ Moments

Abstract

Authors: Elettra Agliardi - National Research University "Higher School of Economics".

Irina Lukyanova - National Research University "Higher School of Economics".

This paper empirically examines the effects of mergers on financial leverage, the relation between growth opportunities and leverage ratios, and in which way the behaviour of acquirers belonging to various industries differ. We also study how the distributional characteristics of returns (mean, volatility, skewness, correlation) affect the deals, and whether there is any particular connection between means of payment and risk reduction in mergers. We find that firms with higher growth opportunities, belonging to high-tech industries, have lower leverage ratios. Industries with larger growth options are the most underleveraged, while those with little options to grow are overleveraged. A large proportion of firms has a volatility increase in the basic materials industry group and in the financial sector. Skewness generally decreases in the former group. The knowledge-intensive industries on average have a decrease in both volatility and skewness, with the exception of chemical industry.