Master Thesis Finance

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Master Thesis Finance

The Influence of Acquisitions on Cash Ratios of the Acquiring

Firm: Evidence from the EU12

Bianca Fledderus – S2810891 Supervisor: Dr. Henk von Eije

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The Influence of Acquisitions on Cash Ratios of the Acquiring

Firm: Evidence from the EU12

Bianca Fledderus

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Abstract

Using a total sample of 1,850 acquisitions from 2007 to 2013 in the EU12, I examine the impact acquisitions have on cash ratios of acquiring firms directly after an acquisition and after one year. This paper shows that cash ratios significantly decline by 1.7% right after an acquisition. Furthermore, the cash ratios significantly decline by 2.2% one year after an acquisition, relative to one year before an acquisition. No significant difference is obtained between the change in cash ratios after a pure cash acquisition, and after a non-cash acquisition. Possible explanations for the decline in cash ratios after an acquisition are; the payment method, where the acquisition is often not financed in one instance; the integration costs; certain repellents aiming to discourage the acquisition; the response of a firm’s investors to the negative announcement effect of acquisitions. Furthermore, this paper shows the importance of acquisition when studying cash ratios. Various studies emphasize how certain variables influence cash ratios in a firm. Acquisitions, however, are not included in these studies, while this is a critical determinant.

Keywords Cash holdings; Cash ratios; Acquisitions; Cash acquisitions; EU12 JEL classification G34; G35

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1. Introduction

Firms acquiring other firms are an important part of finance, involving deals worth millions, or even billions of dollars (Hasbrouck, 1985). Managers of firms can have different motives to engage in an acquisition. Amongst the most important ones are: increasing the market share, diversifying services and products, gaining flexibility in a firm’s operations, sharing risk, and improving competitiveness (see e.g. Colvin, 1999; Bower, 2001; Shleifer and Vishny, 2003; Faulkner, Teerikangas and Joseph, 2012). As Hassan and Ghauri (2014, p. 14) put it: “M&A deals are considered as one of the most important, competitive strategies in domestic as well as in international business”. By engaging in an acquisition, numerous factors of the acquiring firm are influenced, whereby deals configure an industry, transform the culture within an organization, reshape their corporate strategy, and have an enormous effect on the firm’s employees (Marks and Mirvis, 1998).

Acquisitions thus influence several factors of the acquiring firm, and various studies are available studying the impact of acquisitions on stock returns and firm profits (see e.g. Harford, Mansi and Maxwell, 2008; Ismail and Krause, 2010; Chen, Chou and Lee, 2011; Malmendier, Moretti and Peters, 2012). Studies researching the impact of acquisitions on a firm’s financials, however, are very rare. Several studies examine the effects of mergers and acquisitions on dividends, showing a significant increase in dividend payments after an acquisition (see e.g. Jeon, Ligon and Soranakom, 2010; Kwazhi and Khumshe, 2015; Nijmeijer, 2015). For this reason, I am curious to find out if acquisitions influence other financials on a firm’s balance sheet. Specifically, I analyze if acquisitions change a firm’s cash ratios. Much literature is available studying firm cash holdings (see e.g. Ross, 1973; Ozkan and Ozkan, 2004; Harford et al., 2008), whereas studies researching the effects of acquisitions on cash holdings, or cash ratios, are missing. Hence, the following research question is central here: “How are the cash ratios of acquiring firms affected by acquisitions?”

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profitable for firms to keep their foreign earnings abroad in the form of cash (Sánchez and Yurdagül, 2013).

When a firm holds large amounts of cash, or when the cash holdings increase, managers have four alternatives; distribute the additional cash to shareholders; spend it internally; continue to hold the cash; or use it for external acquisitions (Sánchez and Yurdagül, 2013). When a firm’s management decides to employ it for an acquisition, the financing method used for the acquisition is an important matter. Thereby there are various ways of financing an acquisition; all cash; via an earn-out; all stock; all debt; or a combination of financing methods (Faulkner et al., 2012). The acquiring firm’s management should always ask itself how the financing decision influences the expected value creation for the acquiring firm (Martynova and Renneboog, 2009). Moreover within this paper, I research if entirely cash-financed acquisitions affect a firm’s cash ratio in another way than differently financed acquisitions, where several papers indicate the method of payment to be a major factor (see e.g. Fishman, 1989; Martin, 1996; Stulz, 1988; Ismail and Krause, 2010).

The previously-mentioned research question is answered focusing on acquisitions within the EU12, where I consider acquisitions from the year 2007 until 2013, and the effects up until 2014, to make the findings as recent as possible. Thereby I consider domestic, and cross-border acquisitions. Additionally, I take into consideration the size and the level of cash of the target firm in the year before the acquisition, as well as the method of payment to finance the acquisition. In the sample, solely firms that acquire the entire target firm all at once are considered.

The main findings in this paper show that acquisitions, on average, do lead to relatively small, but significantly lower cash ratios of -1.7% directly after an acquisition compared to the year before the acquisition. Furthermore a significant decrease in cash ratios of -2.2% is observed one year after the acquisition relative to one year before the acquisition. At the other end, I do not find a significant difference between the change in cash ratios of cash acquisitions and non-cash acquisitions.

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a firm’s management and its investors by showing to what extent the financing method, as well as the size and the cash ratios of the target firm, influence the acquiring firm’s cash ratios after an acquisition.

The remainder of this paper is structured as follows. In Section 2, I have a closer look at both, the available literature on cash holdings within firms and on acquisitions. In Section 3, I firstly describe how I collect the data, where secondly I explain how the research is carried out. Moreover, I provide the descriptive statistics of the data in this section. In Section 4, I report and discuss the empirical results, where lastly, Section 5 presents the conclusion of this paper, including recommendations for future research. I show the tables and the appendices supporting this study at the end of this paper.

2. Literature Review and Hypotheses

How do acquisitions influence the acquiring firm’s financials? Within this section, I explain the motivations and the advantages and disadvantages of engaging in an acquisition. Furthermore, I go more into depth as to what firm determinants influence a firm’s cash holdings. Lastly, I examine the aftermath, and the influence of the method of payment on the aftermath, of acquisitions.

2.1 Interests of different parties when engaging in an acquisition

Why do managers engage in an acquisition, and how do a firm’s investors perceive acquisitions? When engaging in an acquisition, the interests of the acquiring firm’s management and its investors are not always in line. Thereby the main theory when it comes to the differences in interests between managers and investors is the free cash flow theory by Jensen (1986). This theory emphasizes how managers and investors can have different interests in spending excess cash when this is available. I shortly introduce this theory, followed by other motives to engage, or not to engage, in acquisitions.

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increases the power of management, as the firm grows. Jensen (1986), however, states that “managers of firms with large free cash flows are more likely to undertake low-benefit or even value-destroying acquisitions” (Jensen, 1986, p. 11). A firm’s shareholders thus prefer to limit the access of managers to free cash flow, to lessen agency conflicts over its cash. Management can employ free cash flow for their own, possibly firm-destroying, benefits, leading to a decrease in cash distributions to the firm’s shareholders (in the form of dividends). Due to this asymmetry between managers and investors, agency costs can arise. These agency costs arise as a firm’s principals (investors) want to monitor the firm’s agents (managers) to make sure the agent is acting in the best interest of the principal, leading to monitoring costs (Jensen and Meckling, 1976).

When excess cash is used to finance an acquisition, this can have other consequences for the acquiring firm. Malmendier et al. (2012) describe that the most obvious reason for an adverse effect of an acquisition is the involvement of the acquiring firm’s management, when it comes to the integration of the two firms. Arlen (2002) explains how the acquiring firm has to get to know the target firm, making sure its employees stay motivated, and that the quality of the products and services does not decline. Thereby management does not always succeed to do so, leading to a decrease in the motivation of a firm’s employees (see e.g. Jensen, 1986; Faulkner et al., 2012). The key to a successful acquisition according to Malmendier et al. (2012) is the knowledge of management. Therefore, the monitoring of management stays of great importance also after an acquisition (Jensen and Meckling, 1976). The principal-agency conflicts thus remain an issue. If management wants a firm to succeed, a clear plan should exist about the integration of the target firm, and how the acquiring firm can profit the most from the acquisition (Arlen, 2002).

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2.2 Determinants influencing a firm’s cash holdings

When free cash flow is available, management can use this cash to engage in an acquisition. But what exactly influences the amount of cash a firm hold, in other words; what determines the amount of cash that is available within a firm? Opler, Pinkowitz, Stulz and Williamson (1999) describe several determinants that influence the amount of cash a firm hold. Thereby five primary variables appear to influence a firm’s cash holdings1: size, leverage, liquidity, growth opportunities, and profitability. Within this paragraph, I explain the importance of these variables based on various theories as described in Opler et al. (1999). Next to this, I shortly elaborate on the differences between the amounts of cash firms held during the European financial crisis, and in the average years around the crisis.

2.2.1 Theories explaining the determinants

In the previous paragraph I introduced one of the main theories when it comes to a firm’s cash holdings; the free cash flow theory by Jensen (1986). When studying the determinants influencing a firm’s cash holdings, however, certain other theories as described in Opler et al. (1999) are important; the trade-off theory; and the pecking order theory (Myers, 1984). Based on these three theories and the studies of Vogel and Maddala (1967), Von Eije and Westerman (2011), Ferreira and Vilela (2004), Ozkan and Ozkan (2004), and Harford et al. (2008), the variables influencing a firm’s cash holdings are further explained below.

Trade-off theory. The trade-off theory states that when a firm holds cash, a trade-off is made between the marginal benefits of holding cash and the marginal costs of it. Thereby the marginal benefits of holdings cash include a decrease in the possibility of bankruptcy and minimization of the costs to collect external funds. Furthermore, holding cash allows the pursuance of the optimum investment policy. The main costs involved in holdings cash, as per this theory, are the opportunity costs, as liquid assets generate low returns. The optimal level of cash a firm can hold is thus based on the marginal costs and the marginal benefits.

1_{Other important determinants regarding firm cash holdings, however not further elaborated on in this paper, are}

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Pecking order theory. The pecking order theory of Myers (1984) states that firms prefer financing through retained earnings first, followed by financing through debt, where lastly firms favor equity financing. The principal-agency theory, as presented in Section 2.1, also is an important theory within the pecking order theory. Equity financing is least preferred, where one of the reasons for this is the minimization of principal-agent conflicts between managers and investors (Opler et al., 1999). The pecking order theory states that the primary purpose of holding cash is to use it as a buffer, which can be claimed when retained earnings are not sufficient to meet investment needs. Therefore, firms do not have target cash levels based on this theory.

2.2.2 Variables influencing a firm’s cash holdings

Size. First of all, a firm’s size is one of the primary determinants affecting a firm’s cash holdings. Thereby the trade-off theory states that the cash holdings of small firms are expected to be relatively higher than the cash holdings of larger firms. The primary explanation, based on this theory, is that the probability of bankruptcy for larger firms is less presumably than smaller firms (Opler et al., 1999).

On the other hand, the pecking order theory states that cash holdings of large firms are expected to be relatively higher than those of small firms. The primary explanation, as per this theory, is that large firms are assumed to be more successful, resulting in relatively higher amounts of cash in the firm (see Opler et al., 1999). Based on the free cash flow theory, large firms also tend to hold relatively more cash than small firms. Thereby the management of large firms, in general, has more control, leading to relatively higher cash holdings.

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The pecking order theory predicts the opposite relation between a firm’s leverage and it’s cash holdings, where, on average, a high debt-to-equity ratio leads to relatively less cash holdings in firms, as the pecking order theory states that debt financing is less preferred than cash. Thereby, if the investment would surpass a firm’s retained earnings, debt grows (Opler et al., 1999).

Based on the free cash flow theory, the expectation of the relation between leverage and cash holdings is similar to that of the pecking order theory, stating that highly levered firms are expected to hold relatively less cash. Thereby the management of highly levered firms is monitored more often (Jensen, 1986), where I expect this strict supervision to lead to relatively less cash holdings. Several other studies find this negative relation between a firm’s leverage and its cash holdings (Ferreira and Vilela, 2004; Ozkan and Ozkan, 2004).

Non-cash liquidity. In general, a firm’s non-cash liquidity is expected to be negatively correlated with a firm’s cash holdings. The trade-off theory explains the negative relation between a firm’s liquidity and its cash holdings by the fact that a firm with many non-cash liquid assets, can easily convert these liquid assets to cash when needed. Relatively fewer cash holdings are thus necessary (Opler et al., 1999). Ferreira and Vilela (2004) observe the same findings in their paper.

Growth opportunities. Based on the trade-off theory, relatively higher cash holdings are expected for firms with more growth opportunities, where firms prefer to hold these, relatively higher levels of cash, to be able to make an acquisition, in case an opportunity occurs (Opler et al., 1999).

The pecking order theory states that a firm with much growth opportunities requires relatively large cash holdings, as otherwise the firm can get in a position where they have to decline profitable growth opportunities when a cash deficit occurs (Opler et al., 1999). This thus corresponds to the expectations based on the trade-off theory, where several other papers find this relation (see e.g. Ferreira and Vilela, 2004; Harford et al., 2008; Ozkan and Ozkan, 2004).

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European financial crisis. Within this paper, the research period includes the years of the European financial crisis. Campello, Giambona, Graham and Harvey (2011) show in their paper how the financial crisis influences corporate cash holdings, in a study where they research more than 800 Chief Executive Officers (CEO’s) in 31 countries. They study how firms manage their liquidity when credit is limited. Their main finding is that during the 2008-2009 financial crisis, firms were looking to increase their liquidity. Thereby cash reserves decrease, as firms were forced to use these cash reserves.

In conclusion, the expectation is that a positive relation exists between a firm’s cash holdings and a firm’s growth opportunities and its profitability, whereas the expected relation between a firm’s cash holdings and the non-cash liquidity is negative. The relation between a firm’s cash holdings and its size and leverage are obscure, as various papers are arguing about different relationships. Furthermore, it is expected that, on average, the amount of cash firms held during the European financial crisis is relatively lower than the years around it.

2.3 The financing method and the aftermath of acquisitions

When engaging in an acquisition, the acquiring firm has various possibilities to finance the acquisition. Faulkner et al. (2012) describe in their book The Handbook of Mergers and Acquisitions how firms decide on the method of payment and the payment process in general. Thereby, when the acquiring firm makes a successful bid, the amount offered must be adequate to attract enough shareholders of the target firm. In their book, they describe several methods to finance the acquisition. The most common methods to acquire the target firm are by paying with cash (or via an earn-out2), paying with stock, or paying with debt, where, next to these options, a combination is possible. When financing the acquisition, the acquiring firm can, first of all, pay the entire acquisition in one instance. Paying for the acquisition in on instance, however, is not always a possibility, as the acquiring firm does not necessarily has the resources to pay for the acquisition in one instance. When funding the acquisition all at once is not a possibility, borrowing from the target firm is an alternative, where there is a spread payment. By doing so, beforehand an agreement is set between the acquiring firm and the target firm stating the amount the acquiring firm pays over the years. Common is a substantial payment directly after the acquisition, followed by monthly repayments (Faulkner et al., 2012). Thereby,

2_{With an earn-out the sum depends on the future profits the acquiring firm generates through the target firm.}

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a comparable alternative is to organize a so-called vendor loan3_{with a bank instead of with the} target firm.

After the acquiring firm decides on the method of payment, the acquiring firm’s management should ask itself what will happen to the balance sheet of their firm in the years after the acquisition. More specifically, how are the liquid assets of the acquiring firm affected after an acquisition? The integration process after an acquisition, as explained in Section 2.1, may lead to integration costs (Faulkner et al., 2012). Thereby 40% of the acquiring firm’s management underestimates the post-integrating costs after an acquisition4, which eventually leads to (unexpected) higher costs for the acquiring firm in the years after an acquisition.

Another matter influencing the acquiring firm’s liquid assets after an acquisition, are certain procedures aiming to discourage the acquisition. Thereby a golden parachute is an example of a so-called repellent5, where a firm’s top management is guaranteed to receive an enormous cash payment after the firm is taken over. These cash payments usually require some years after the acquisition to be paid, due to the sizeable amounts of the cash payments (Faulkner et al., 2012).

Lastly, differences on the balance sheet of acquiring firms after an acquisition might be observed between domestic and international acquisitions (see e.g. Doukas and Travlos, 1998; Girma, Thompson and Wright, 2006). Thereby foreign acquisitions can have a positive impact due to new geographical opportunities, new possibilities regarding resources, and lower personnel costs or taxes (see e.g. Morosoni, Shane and Singh, 1998; Anand, Capron and Mitchell, 2005). International acquisitions, on the other hand, can also have adverse effects, where a disadvantage of a cross-border acquisition are the higher costs that are involved in the acquisition.

The availability of research regarding acquisitions and the influence on cash ratios is limited. As I expect a firm’s cash ratio to decrease after an acquisition, I state the alternative hypothesis as a one-tailed hypothesis.

Hypothesis 1

H1: Cash ratios of acquiring firms are the same before and after an acquisition.

H1a: Cash ratios of acquiring firms are lower after acquisitions than before acquisitions.

3_{A type of loan where the acquirer pays part of the purchasing price over time. There is a contractual payment}

deferral in the form of a loan (Faulkner et al., 2012).

4_{“Post-Merger Integration Survey 2009” results published by PricewaterhouseCoopers (PwC).}

5_{“An umbrella term for a variety of procedures with the common aim of deterring or repelling takeovers”}

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2.4 Why finance an acquisition with cash?

In the previous paragraph, I explained how there are various ways of financing an acquisition. Within this subsection I study the differences between pure cash acquisitions and non-cash acquisitions, followed by a second hypothesis.

Ismail and Krause (2010) show that an important variable to determine the method of payment is the signaling to investors. Thereby Myers and Majluf (1984) argue that the acquiring firm will finance the acquisition with cash if they consider the target firm to be undervalued. “Cash payments are used to signal a higher valuation of the target firm and thus preempt potential competing bidders, which in turn implies that cash payment transactions are associated with higher acquisition premiums than transactions using other methods of payments” (Chen et al., 2011, p. 2231). Furthermore, Jensen (1986) states that all-cash acquisitions go together with greater benefits than the benefits resulting from an all-stock acquisition. Thereby all-stock acquisitions can signal to investors that there is a shortage of free cash flow in the acquiring firm. Another staunch supporter of all-cash acquisitions is Warren Buffet stating that when a firm issues stock, the firm decreases the value for its existing shareholders (Cunningham, 2002). If the acquiring firm finances the target firm with new shares, this furthermore results in a decreasing proportion of control for existing shareholders (Stulz, 1988). Several other papers find that cash acquisitions are somewhat more valuable than differently financed acquisitions. They lead to a higher firm profitability, and a greater motivation of the acquiring firm’s management, to use the firm’s resources in a more efficient manner (see e.g. Ghosh, 2001; Linn and Switzer, 2001; Haleblian et al., 2009).

When financing an acquisition through cash, another advantage is that the cash-paying acquirer is most likely to be accepted by the seller when there are more bidders (Faulkner et al., 2012). On the other hand, a cash payment can be seen as riskier for the acquiring firm, as this would decrease their liquid assets, and therefore make the debt on the balance sheet riskier, leading to higher interest rates. Concluded can be that paying an acquisition entirely with cash has advantages and disadvantages.

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Hypothesis 2

H2: Changes in cash ratios after pure cash acquisitions do not differ from changes in cash ratios after non-cash acquisitions.

H2a: Changes in cash ratios after pure cash acquisitions are more negative than changes in cash ratios after non-cash acquisitions.

3. Data and Methodology

Within this section, I, first of all, explain how I collect the data for this paper, followed by descriptive statistics. Secondly, I describe what statistical tests I perform to test the hypotheses of Section 2. Moreover, for the remainder of this paper, I view cash as the condition of cash and short-term marketable securities, as advised by Ferreira and Vilela (2004). Unless indicated otherwise, I use the cash ratio (cash and short-term marketable securities over total assets) for future calculations and statistical tests.

3.1 Data

Within this section, I specify the sources I use to obtain the data for the statistical tests. I furthermore motivate the collection of data, and I present descriptive statistics.

3.1.1 Data collection

Data are obtained through Zephyr and Orbis, via the database of Bureau van Dijk (BvD). When selecting the data for this study, various items are taken into consideration. First of all, within this paper, I require the acquiring firm to be a listed or a delisted firm. By selecting delisted firms, I exclude survivor bias from the sample. To verify whether the acquiring firm takes over a firm with large amounts of cash and assets, I also consider the target firm. Thereby I include both unlisted and listed target firms. By reviewing the cash ratios of as well, the target firm as the acquiring firm, I have the possibility to verify in what way the cash ratios of the target firm influence the cash ratios of the acquiring firm when engaging in an acquisition.

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the cash ratios of the selected firms up to at least one year before, and one year after the acquisition.

The deals in my sample are all completed-confirmed deals, where partial acquisitions are excluded from the selection. Consequently, I only consider acquisitions where the acquiring firm acquires 100% of the target firm during the acquisition. Next, only non-financial firms are selected, as financial firms might hold cash for regulatory purposes. Furthermore, I exclude firms providing no BvD-ID numbers, or showing extreme outliers from the sample. When I then consider all of the selection criteria mentioned above, the total sample for this study consists out of 1,850 acquisitions, An overview of the choices made and the final sample is shown in Appendix A.

After collecting the data in Zephyr, the BvD-ID numbers of the acquiring and target firms are used to obtain the financial information via the Orbis database. The financial data are entirely based on the end-of-the-year balance sheets data. The general descriptive statistics of the sample used, are given in Appendix B. Herein it can be observed that most deals are domestic deals (73.4%) occurring in the year 2007 (26.3%). Furthermore, 14.1% of the deals in this sample are financed through cash, where 20.5% of the acquisitions are differently financed acquisitions. It should be noted, though, that the sample used in this study for the entire dataset, is much larger than the sample used for the cash and differently financed acquisitions. This is because Orbis does not provide the method of payment for all the acquisitions.

3.1.2 Descriptive statistics

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Next to the descriptive statistics regarding the cash ratios of the acquiring firms, I provide statistical data on the control variables used in the regression analyses. These statistics are presented Table 2. Within this table, the statistics in the year before the acquisition, the year of the acquisition, and the year after the acquisition are provided. As can be observed the average size of the acquiring firm increases after an acquisition. The leverage of the acquiring firm seems to increase in the year of the acquisition, compared to one year before the acquisition, whereas it decreases the year after the acquisition again. Furthermore, the acquiring firm’s non-cash liquidity on average decreases after an acquisition. Lastly, the acquiring firm’s growth opportunities and its profitability both seem to decrease after an acquisition.

3.2 Methodology

To test the hypotheses, I perform tests for equality, as well as ordinary least squares (OLS) regressions. Lastly, I perform robustness tests. I further elaborate on these tests within this section.

3.2.1 Tests for equality of means and medians

In the tests for equality of means, I compare the mean cash ratio of the acquiring firm one year before the acquisition (at the end of the year), and the mean cash ratio of the acquiring firm at the end of the year of the acquisition [-1;0]. By doing so, I can observe direct changes in the average cash ratio in the year of the acquisition. Next to this, I compare the mean cash ratio of the acquiring firm one year before the acquisition (at the end of the year) and at the end of the year one year after the acquisition [-1;+1]. By doing so, I research the impact acquisitions have on the acquiring firm’s cash ratio one year after the acquisition, compared to one year before the acquisition. I research this as there may be additional payment and costs involved in the aftermath of the acquisition. Next to the tests for equality of means, I perform tests for equality of medians, as outliers might be present. The tests for equality of medians are also performed using the time frames of [-1;0] and [-1;+1].

3.2.2 Regression analyses

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correlation matrix. This matrix is shown in Appendix C, where it can be observed that multicollinearity is not a problem, as all coefficients are lower than the usual critical value of 0.7.

Within the OLS regressions, several control variables are added that are expected to influence a firm’s cash ratio, as alleged by several other papers. First of all, the size is expected to be relevant (see e.g. Jensen, 1986; Stulz, 1990; Ferreira and Vilela, 2004; Pinkowitz et al., 2006). Thereby I consider the size of the acquiring firm, however also the size of the target firm. I expect the size of the target firm to be an interesting addition, verifying in what way the size of the target firm influences the cash ratio of the acquiring firm after the acquisition. Secondly, the acquiring firm’s leverage is expected to influence its cash ratio (see e.g. Jensen, 1986; Stulz, 1990; Ferreira and Vilela, 2004; Ozkan and Ozkan, 2004). Next to this, its non-cash liquidity (see e.g. Ferreira and Vilela, 2004; Ozkan and Ozkan, 2004), and growth opportunities (see e.g. Myers, 1984; Ozkan and Ozkan, 2004; Harford et al., 2008) are expected to influence the cash ratios. Lastly, the acquiring firm’s profitability is expected to influence its cash ratio (see e.g. Vogel and Maddala, 1967; Ozkan and Ozkan, 2004).

The size (SIZE ACQUIRER INCLUDING TARGET) of the firm is measured as the natural logarithm of a firm's total assets (see e.g. Opler et al., 1999). Leverage (LEVERAGE ACQUIRER) is measured as a firm’s total debt and liabilities over a firm’s total equity. The firm’s non-cash liquidity (NON-CASH LIQUIDITY RATIO ACQUIRER) is measured as its current assets over its current liabilities, where the cash and cash equivalents are excluded from the current assets. A firm’s growth opportunities (GROWTH OPPORTUNITIES ACQUIRER) are measured by the firm’s market-to-book value, and lastly, the profitability (PROFITABILITY ACQUIRER) of firms is measured as the return on assets in percentages (ROA in %).

Next to the size, leverage, non-cash liquidity, growth opportunities, and profitability of the acquiring firm, I include several other factors in the regression6. Firstly, I include a dummy variable being one if an acquisition occurred in the year 2008 or 2009, and zero in other years (CRISIS YEAR). Campello et al. (2011) explain how the cash holdings in the financial crisis decreased. Secondly, I include a dummy variable to verify how the location of the target firm influences the cash ratios, as acquiring an international target firm could result in different

6_{A variable showing the time in the year of the acquisition was added to the regression, as I expected an acquisition}

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outcomes (see e.g. Doukas and Travlos, 1998; Morosoni et al., 1998; Anand et al., 2005). This dummy is zero for domestic target firms, and one for international target firms (INTERNATIONAL TARGET). Lastly, a subsequent regression is performed to test the second hypothesis. Thereby, a dummy variable is added for the method of payment (CASH ACQUISITION), where one indicates a cash acquisition, and zero indicates non-cash acquisitions, including acquisitions for which no method of payment is specified.

These regressions are firstly performed on a time frame including the year before the acquisition, and the year of the acquisition [-1;0]. Thereby the dependent variable consists of the cash ratios of the acquiring firms in the year of the acquisition (t), minus the cash ratios of the acquiring firms in the year before the acquisition (t-1). Furthermore, the control variables are their value in the year of the acquisition (t), minus their value in the year before the acquisition (t-1), where the average of the respective variable is deducted from this, in order to give the constant term the meaning of the change in the cash ratio. The values for the dummy variables are the value of the dummy, being either zero or one, where these values are as well deducted by its averages. The size in this first time frame, including the size of the target firm in the year before the acquisition (t-1), then looks as follows:

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(1)

(2) The first regression (Equation 1) tests if acquisitions have an effect on the change in a firm’s cash ratio (after adding an error term 5_6,&) and is given by:

∆9:";<:=#>_6,& = 0₃+ 0_,9<#"#" @%:<_6,&+& + 0_A#B=%<B:=#>B:C =:<D%=_6,&+& + 0_E∆"#$% :9FG#<%< #B9CGH#BD =:<D%=_6,&+ 0_I∆ C%J%<:D% :9FG#<%< +

0_K∆B>B9:"; C#FG#H#=@ <:=#> :9FG#<%<_6,&+

0_L∆D<>M=; >NN><=GB#=#%" :9FG#<%<_6,& + 0₁∆N<>O#=:P#C#=@ :9FG#<%<_6,&+ 5_6,&

The second regression (Equation 2) tests if the financing method of the acquiring firm influences the change in cash ratios after an acquisition. Therefore, a cash payment dummy (0_,) is added to the regression.

∆9:";<:=#>_6,& = 0₃+ 0_,9:"; N:@Q%B=_6,&+& + 0_A9<#"#" @%:<_6,&+& +

0_E#B=%<B:=#>B:C =:<D%=_6,&+& + 0_I∆"#$% :9FG#<%< #B9CGH#BD =:<D%=_6,& + 0_K∆ C%J%<:D% :9FG#<%< + 0_L∆B>B9:"; C#FG#H#=@ <:=#> :9FG#<%<_6,&+ 0₁∆D<>M=; >NN><=GB#=#%" :9FG#<%<_6,& + 0₂∆N<>O#=:P#C#=@ :9FG#<%<_6,&+ 5_6,&

After these two regressions, similar regressions are performed, however here the time span changes to one year before the acquisition, until one year after the acquisition [-1;+1]. Thereby the year of the acquisition (t) for the dependent variable, and all independent variables, changes to one year after the acquisition (R_S,).

3.2.3 Robustness tests

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3.2.3.1 Excluding firms engaging in multiple acquisitions in the same year

As firms engaging in more than one acquisition per year might show different cash ratios on their end-of-the-year balance sheet, these firms are excluded from the sample for the first robustness test. To verify whether the results of the tests for equality of means and equality of medians are robust based on this smaller sample, I perform the same tests as explained in Section 3.2.1, the T-Tests, the Mann-Whitney Tests, and the Kruskal-Willis Tests.

To verify if the results for the regressions are robust, I perform exactly the same regressions, however in the sample, just as for the tests of equality, only firms that engage in maximum one acquisition per year are included.

3.2.3.2 Including the cash ratio of the target firm

A second robustness test is performed in which the cash ratio of the target firm is included. First of all, the tests of equality are re-estimated where the means and medians in the year before the acquisition (t-1) now include the cash ratio of the target firm. The cash ratio used for the tests of equality of means and medians in the year before the acquisition (t-1) now looks the following: _\UU]&UT(UVWXYS T(UVZW[

WXYS\UU]&UZW[.

Next to this, the OLS regressions are re-estimated including the size of the target firm in the dependent variable. By doing so the dependent variable of the regressions for the first and the second time span, are the cash ratios of the acquiring firm in t or t+1 respectively, minus the cash ratios of the acquiring firms and the cash ratios of the target firms in t-1.

4. Results and discussion

Within this section, I present and discuss the obtained results of the various statistical tests, starting with the tests for equality, followed by the regression analyses and ending with the robustness tests.

4.1 Tests for equality

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1.7%. Similar results can be observed for the test for equality of medians showing an average decrease of 0.8% on a 5% significance level. When I extend the time span [-1;+1] and look at the difference between the cash ratios one year before the acquisition, and the cash ratios one year after the acquisition, again a 1% significant decrease in the cash ratios is observed (-2.2%). As the cash ratios before an acquisition are significantly higher than the cash ratios after an acquisition, I do reject the null-hypothesis of the first hypothesis and conclude that the alternative hypothesis is true at the 99% confidence level. Meaning that cash ratios of acquiring firms are lower after acquisitions than before acquisitions.

When considering acquisitions that are entirely financed with cash, neither of the panels show a significant change in the cash ratios after a pure cash acquisition for the first time span. When I extend the time span, and consider the change in cash ratios one year before a pure cash acquisition, and one year after a pure cash acquisition significant results are obtained. The test for equality of means then shows a decrease of 3.5%, where the test for equality of medians shows a decrease of 2.4% between these two years, both being significant at a 5% significance level.

The fact that the significant decline in cash ratios is only significant for the second, larger, time span, and the significant decline in cash ratios for the entire sample, could be interpreted in various ways. First of all, Faulkner et al. (2012) describe how acquiring firms can decide to pay an acquisition spread out over several years or via an earn-out. Thereby, it is common that the acquiring firm pays a relatively large percentage of the total amount due directly after the acquisition, followed by smaller percentages in the subsequent years. Other explanations are the integration costs that the acquiring firm encounters, or a golden parachute as explained by Faulkner et al. (2012). Lastly, the response of investors to the announcement of an acquisition could explain the change in cash ratios. Investors may decide to sell their shares in the acquiring firm as a reaction to the signal the acquiring firm gives by acquiring another firm (overvalued stocks). When more than a few investors respond to the acquisition by selling their shares; the acquiring firm may need to use its cash reserves, if financing is needed, resulting in the decline in cash ratios.

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firm immediately. An explanation for the larger decrease in cash ratios of non-cash acquisitions than the decrease in cash ratios of pure cash acquisitions, could be the motivation of the acquiring firm’s management (Ghosh, 2001; Linn and Switzer, 2001). Linn and Switzer (2001), for example, state that when an acquisition is financed through cash, the management of the acquiring firm is motivated to use the resources in a more efficient way. This possibly increases the profitability of the acquiring firm, as also stated by Gosh (2001), which could then lead to higher amounts of liquid assets in the firm.

Lastly, no significant difference between the change in pure cash acquisitions, and the change in non-cash acquisitions is observed (for both time spans, and for both panels). For this reason, I fail to reject the null-hypothesis of the second hypothesis and therefore conclude that there is not enough evidence to state that the null hypothesis is false. Meaning that changes in pure cash ratios after cash acquisitions do not differ from changes in cash ratios after non-cash acquisitions.

In conclusion, one can say that the cash ratios of acquiring firms are significantly different in the year before the acquisition and the year of the acquisition, as well as the year before the acquisition and the year after the acquisition, looking at the entire dataset, as well as looking at non-cash acquisitions. When a firm decides to finance the target firm entirely with cash, remarkably, there is no significant difference in their cash ratios in the year before the acquisition, and the year of the acquisition. When extending the time span, however, there is a significant difference between a firm's cash ratios in the year before the pure cash acquisition, and the cash ratios one year after the pure cash acquisition. When comparing pure cash acquisitions with non-cash acquisitions, no significant results are obtained at all.

4.2 OLS regressions

The results of the OLS regressions are shown in Table 4. Herein the first (1), and the third (3) column provide the results of the regressions to test the first hypothesis for the first and the second time span respectively. Whereas the second (2), and the fourth (4) column provide the results of the regressions to test the second hypothesis including the method of payment for the first and second time span respectively.

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-0.017, where Column 1 of Table 4 shows that the value of the coefficient is -0.021. Furthermore, Column 3 of Table 4 shows the value of -0.021 for this coefficient, corresponding to the value of -0.022 as obtained in the second time span for the test of equality of means in Table 3 (Panel A).

For all the four columns, significant negative results are observed for the size variable at a 5% significance level. This variable includes both, the size of the target firm, and the size of the acquiring firm. Meaning that if the change in the size of the firms increases by 100%, because of the acquisition, this leads to a decrease in cash ratios of 0.3%. Based on the literature this result is expected, where it could be explained by the trade-off theory, stating that small firms hold relatively more cash, as the probability of bankruptcy for smaller firms are larger.

Next, significant at a 1% significance level, is the non-cash liquidity, being significant for all the four regressions. The change in the non-cash liquidity positively influences the change in cash ratios of the acquiring firm. This result is contradictory with the literature, expecting a negative correlation between a firm’s non-cash liquidity, and the change in cash ratios.

Furthermore, the change in the profitability of the acquiring firm positively influences the change in cash ratios. This result, though, is only significant for the first time span. Based on the literature this significant positive result (for the first time span) is expected as a higher profitability leads to larger cash inflows (Vogel and Maddala, 1967; Ozkan and Ozkan, 2004).

Changes in the size, the non-cash liquidity, and the profitability (for the first time span) thus prove to be significant when explaining the change in the cash ratios after the acquisition. However changes in the leverage, and growth opportunities do not explain changes in cash ratios around acquisitions. Furthermore, based on the literature I expected significant negative results for firms acquiring an international target firm, and negative results for acquisitions in the years of the financial crisis. These dummy variables, however, do not significantly influence the change in cash ratios after an acquisition. Furthermore, according to Column 2 and Column 4 (Table 4), where the method of payment is included, pure cash acquisitions do not seem to significantly influence the change in cash ratios after acquisitions.

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4.3 Robustness tests

In this paragraph, I verify if the obtained results are robust, and therefore, several robustness tests are performed.

4.3.1 Excluding firms engaging in multiple acquisitions in the same year

For both, the tests of equality and the OLS regressions, I perform robustness tests in which firms that engage in various acquisitions in the same year are excluded from the sample for that respective year. The tests are performed for both time spans, where the results of the robustness tests for the tests for equality of means and medians are presented in Table 5. The results of the robustness tests for the OLS regressions are presented in Table 7.

As can be observed, the robustness tests of the tests for equality of means (Table 5, Panel A) for the first time span as well as the second time span, show comparable significant results to the results of the original tests (Table 3), for the entire dataset. The acquisitions that are entirely financed with cash, do now show a significant decrease in cash ratios for the first time span in contrast to the insignificant results of the original regression (Table 3, Panel A). The non-cash acquisitions, on the other hand, no longer show significant results for the first time span.

Looking at the robustness tests of the tests for equality of medians in the first time span (Table 5, Panel B), the results for the entire dataset are again comparable to the original tests in Table 3. The results for the pure cash acquisitions remain insignificant, whereas the results for the non-cash acquisitions no longer are significant for the first time span.

Looking at the second, longer, time span, similar results to the original tests for equality can be observed, showing significant results for all samples, and for both Panel A and B. Where in the original tests the biggest significant decrease in cash ratios is observed for non-cash acquisitions (for the second time span), in these robustness tests the largest significant decline in cash ratios is found for pure cash acquisitions. Firms only engaging in one acquisition per year, and paying this acquisition entirely with cash, then do show a larger significant decrease in the cash ratios between one year before the acquisition, and one year after the acquisition. Lastly, neither of the time spans, and neither of the tests for equality show significant results for the differences between the change in pure cash acquisitions and non-cash acquisitions. These results are again comparable to the results of the original regression (Table 3).

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(Table 4) for both time spans, except for the profitability variable in the second time span. Where the change in the acquiring firm’s profitability does not seem to significantly influence the change in cash ratios in the original regressions for the second time span, this robustness regression does show positive significant results for this variable on a 10% significance level. Furthermore, the constant term based on this robustness test is still significant at a 1% significance level for both time spans. Thereby the constant term for the first time span is -0.021 (Table 7, Column 1), compared to a change in cash ratios of -0.017 based on the test for equality of means (Table 5, Panel A). The constant term for the second time span is -0.023 (Table 7, Column 5), which is again comparable to the change in cash ratios of -0.024 based on the corresponding robustness test for the test for equality of means (Table 5). Overall, it can be concluded that based on this robustness test, the obtained regression results are robust.

4.3.2 Including the cash ratio of the target firm

For the second robustness test, I perform both statistical tests again, where I include the cash ratio of the target firm in the year before the acquisition (in the calculation of the original cash ratio of the acquirer). The results of the robustness test for the tests for equality of means and medians are presented in Table 6, in Panel A and B respectively. The results of this robustness test for the OLS regressions are shown in column three (3) and four (4) of Table 7 for the first time span [-1;0]. Column seven (7) and eight (8) of Table 7 present the findings for the second time span [-1;+1].

As the robustness tests of the tests for equality (Table 6) show, very similar results as compared to Table 3 are obtained for both time spans and both panels. As can be observed the changes in cash ratios for both time spans are smaller than the changes in the original tests in Table 3. This is a consistent finding as the cash ratios of the target firms are now included in the year before the acquisition, where after the acquisition the cash ratios of the acquiring firm again include the financials of the target firm. Again no significant results are obtained for the differences in cash ratios between pure cash acquisitions and non-cash acquisitions. Therefore, based on this second robustness tests, I can again conclude that the results of the original tests for equality are robust.

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comparable to the change in cash ratios based on the corresponding test for equality of means (Table 6, Panel A). For the second time span, the test for equality of means shows a difference of 0.019 (Table 6, Panel A), where the value for the constant term (Table 7, Column 7) is -0.018, which is again very comparable.

5. Concluding remarks

I analyze the influence of acquisitions on cash ratios in the EU12. The results of this paper provide evidence that acquisitions do influence a firm's cash ratios. This decline in cash ratios directly after the acquisition compared to the year before the acquisition, is even larger if one extends the period of the analysis by one year. Implying that in the year after the acquisition cash ratios further decline. Moreover, the changes in cash ratios for both time spans are smaller when the cash ratios of the target firms are included in the cash ratios one year before the acquisition, but these changes do remain significant.

When examining the differences in cash ratios between pure cash acquisitions and non-cash acquisitions, no significant difference is observed between the change in cash ratios of the two, nor is there a significant change in cash ratios directly after a pure cash acquisition. On the other hand, a significant decline in cash ratios after a pure cash acquisition exists between one year before the acquisition and one year after the acquisition. Thereby this decline (-3.5%), is larger than the decline of -2.2% based on the entire dataset within this time span. So two years after the pure cash acquisitions cash ratios have declined.

The results of the OLS regressions correspond to those of the tests for equality. Furthermore, the determinants influencing a firm’s cash ratios seem to be in line with most of the literature, where the change in cash ratios is positively influenced by the changes in non-cash liquidity and the profitability of the acquiring firm. The change in the size, of the target firm and the acquiring firm, negatively influences the change in cash ratios. The acquiring firm’s leverage and its growth opportunities are no longer relevant determinants of cash ratios around an acquisition. The regressions, furthermore, confirm that pure cash acquisitions do not significantly influence the change in cash ratios right after an acquisition.

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available to suggest that the null hypothesis is false at the 90% confidence level. Meaning that changes in cash ratios after pure cash acquisitions do not differ from changes in cash ratios after non-cash acquisitions.

Several economic explanations can be given for the obtained results, where the results are most likely the consequence of the aftermath an acquisition brings to a firm’s balance sheet. First of all, an acquisition is seldom funded all at once. In most occasions the acquisition is paid over the years, explaining the larger significant decline in cash ratios one year after the acquisition, than the year of the acquisition. Another explanation for this result could be the managerial implications, where an acquisition goes together with certain integration costs. Furthermore, certain take-over repellents can influence the aftermath on the acquiring firm’s balance sheet. Lastly, the negative announcement effects of acquisitions could explain the decline in cash ratios after an acquisition.

The latter impact of the announcement effect on the change in cash ratios has, to my knowledge, never been studied before. I therefore think that for future research it would be interesting to study the announcement effects of acquisitions on cash ratios. Other interesting topics of which this paper opens the leeway to, are a study of the differences between taking over firms in common law countries, and in civil law countries. As shown by La Porta et al. (1998) there are significant differences between shareholder rights, and thus, cash holdings, in common law and civil law countries. As within this paper, the only common law country is Ireland (covering less than 3% of the entire sample) this research is not included in this study. Furthermore, I think it would be interesting to research the differences between acquiring a listed or an unlisted target firm, as mentioned by Von Eije (2012). Thereby, again, the sample used in this paper is too small to consider this, as less than 1% of the target firms are listed firms.

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Tables

Table 1: Cash ratios of the acquiring firms

This table gives an overview of the cash ratios of the acquiring firms of the sample used within this paper. It shows the amount of observations (N), the mean, median, maximum, minimum, and standard deviation, first of all, of the entire sample. Next, the statistics are shown for pure cash acquisitions, and lastly, the statistics of non-cash acquisitions are shown. The latter group consists only of firms for which the method of financing is known. The difference in observations between the entire sample, and the pure cash and non-cash acquisitions can be explained by the fact that Orbis does not provide the method of payment for all the acquisitions. Furthermore, the statistics are provided for the end-of-the-year balance one year before the acquisitions (t-1), up until the end-end-of-the-year balance one year after the acquisition (t+1), where t stands for the end-of-the-year balance of the year of the acquisition. The numbers shown are the cash ratios.

t -1 t t +1 N 1584 1606 1600 Mean 0.135 0.118 0.113 Median 0.091 0.084 0.081 Maximum 0.995 0.989 0.747 Minimum 0.000 0.000 0.000 St. Dev 0.142 0.115 0.109 N 187 191 190 Mean 0.146 0.124 0.111 Median 0.104 0.088 0.079 Maximum 0.789 0.625 0.683 Minimum 0.000 0.000 0.000 St. Dev 0.153 0.119 0.113 N 320 323 325 Mean 0.150 0.117 0.106 Median 0.100 0.084 0.070 Maximum 0.876 0.989 0.687 Minimum 0.000 0.000 0.000 St. Dev 0.155 0.114 0.100 Entire sample

Pure cash acquisitions

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Table 2: Descriptive statistics of the control variables

This table gives an overview of the descriptive statistics of the control variables used in the regression analyses. It shows the amount of observations (N), the mean, median, maximum, minimum, and standard deviation. The statistics are provided for the end-of-the-year balance one year before the acquisitions (t-1), up until the end-of-the-year balance one year after the acquisition (t+1), where t stands for the end-of-the-year balance of the year of the acquisition.

t-1 N Mean Median Maximum Minimum St. Dev.

Size target (ln total assets) 1282 8.498 8.333 15.946 0.245 2.023

Size acquirer (ln total assets) 1609 12.972 12.841 24.124 3.749 2.416

Leverage acquirer (debt/equity) 1259 2.207 1.538 65.455 0.018 2.884

Non-cash liquidity acquirer (current ratio) 1664 1.858 1.295 65.100 0.000 3.554

Growth opportunitites acquirer (market-to-book) 1208 2.445 1.750 105.060 0.000 4.012

Profitability acquirer (ROA in %) 1683 3.917 4.291 52.951 -76.788 8.797

t

Profitability acquirer (ROA in %) 1707 3.196 3.794 52.365 -95.620 9.314

t+1

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Table 3: Results of the tests for equality of means and medians

This table reports the outcomes of the tests for equality of means (T-Test) in Panel A. Panel B presents the outcomes of the tests for equality of medians, where the MW-Statistic shows the Mann-Whitney Statistic, and the KW-Statistic represent the Kruskal-Wallis Statistic. Both panels represent a time frame of one year before the acquisitions, and the year of the acquisition [-1;0], as well as one year before the acquisition, and one year after the acquisition [-1;+1]. The means and medians are the cash ratios. The tests are performed on the total dataset as well as on a dataset where only pure cash acquisitions are included, and on a dataset where only non-cash acquisitions are included. Furthermore, the differences in observations between the total dataset and the number of pure cash acquisitions and non-cash acquisitions, is caused by the fact that the Orbis database does not provide the method of payment for all acquisitions. Lastly, an overview of tests where pure cash acquisitions and non-cash acquisitions are compared, is presented at the bottom row of each panel.

Significant at 1% (***); significant at 5% (**); significant at 10% (*). Panel A - Tests for equality of means

N Mean [-1] Mean [0] Difference N Mean [-1] Mean [+1] Difference

Total Dataset 3190 0.135 0.118 -0.017 3.689 *** 3184 0.135 0.113 -0.022 4.912 ***

Cash acquisitions 378 0.146 0.124 -0.022 1.567 377 0.146 0.111 -0.035 2.527 **

Non-cash acquisitions 544 0.150 0.117 -0.033 2.555 ** 546 0.150 0.106 -0.043 3.557 ***

∆ Cash acq. ∆ Cash acq.

Cash vs. non-cash acquisitions 476 -0.024 -0.036 -1.063 456 -0.035 -0.044 -0.771

Panel B - Tests for equality of medians

N Median [-1] Median [0] Difference N Median [-1] Median [+1] Difference

Total Dataset 3190 0.091 0.084 -0.008 2.141 ** 3184 0.091 0.081 -0.010 3.143 ***

Cash acquisitions 378 0.104 0.088 -0.016 1.052 377 0.104 0.079 -0.024 2.299 **

Non-cash acquisitions 544 0.100 0.084 -0.016 1.901 * 546 0.100 0.070 -0.030 2.900 ***

∆ Cash acq. ∆ Cash acq.

Cash vs. non-cash acquisitions 476 -0.009 -0.016 -1.439 456 -0.014 -0.020 -0.494

KW-Statistic KW-statistic Time span [-1;0] Time span [-1;0] Time span [-1;0] MW-Statistic MW-Statistic T-statistic T-statistic Time span [-1;+1] ∆ Non-cash acq.

∆ Non-cash acq. ∆ Non-cash acq.

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Table 4: Results of the OLS Regressions

This table shows the results of the OLS regressions. The first (1), and the second (2) column give the results of the regressions based on the time span of the acquisition year [-1;0], whereas the third (3), and the fourth (4) column present the results of the regressions based on the longer time span [-1;+1]. Herein column two, and four include a dummy for the method of payment; the cash acquisition variable, being one for cash acquisitions, and being zero for non-cash acquisitions (and acquisitions for which there is no information available). Furthermore, the crisis year variable is a dummy variable, being one if the acquisition occurred during the financial crisis (2008 or 2009), and being zero if not. International target is a dummy variable, being one if the target was international (a cross-border acquisition), and being zero if it concerned a domestic acquisition. Furthermore, the changes in the size (including the size of the target firm), the liquidity, the leverage, the growth opportunities, and the profitability of the acquiring firms are considered as control variables. Lastly, C is a constant term. The dependent variable in the regressions is the change in cash ratios between the year of the acquisition and one year before the acquisition (Column 1, and 2), and the change in cash ratios between one year after the acquisition and one year before the acquisition (Column 3, and 4). The first number shown for each variable represents the variable its coefficient, whereas the second number represents the t-statistic between parentheses.

Significant at 1% (***); significant at 5% (**); significant at 10% (*).

C -0.021 -0.021 -0.021 -0.021 [-8.91] *** [-8.91] *** [-7.57] *** [-7.57] *** CASH ACQUISITION 0.007 -0.005 [0.99] [-0.62] CRISIS YEAR 0.002 0.002 0.007 0.007 [0.34] [0.31] [1.08] [1.10] INTERNATIONAL TARGET -0.006 -0.007 -0.008 -0.007 [-1.25] [-1.28] [-1.26] [-1.24]

∆ SIZE ACQUIRER INCLUDING TARGET -0.003 -0.003 -0.003 -0.003

[-2.27] ** [-2.25] ** [-2.40] ** [-2.41] **

∆ LEVERAGE ACQUIRER 0.000 0.000 0.000 0.000

[-0.52] [-0.51] [-0.28] [-0.30]

∆ NON-CASH LIQUIDITY RATIO ACQUIRER 0.037 0.037 0.038 0.038

[4.75] *** [4.78] *** [4.21] *** [4.23] ***

∆ GROWTH OPPORTUNITIES ACQUIRER 0.000 0.000 0.000 0.000

[-0.04] [-0.08] [-0.05] [-0.03] ∆ PROFITABILITY ACQUIRER 0.001 0.001 0.001 0.001 [3.26] *** [3.25] *** [1.49] [1.46] NUMBER OF OBSERVATIONS 705 705 701 701 ADJUSTED R-SQUARED 0.403 0.403 0.364 0.363 (1) (2) (3) (4)