Financial Constraints and Financing Decision in Cross-Border Mergers & Acquisitions: Evidence From the US Retail Sector.

摘要

Many global retailers in mature markets employ mergers and acquisitions (M&A) as an essential strategic tool to expand into foreign markets. Cross-border M&A are more likely to face financial constraints than other forms of investment and domestic deals. When facing different levels and types of financial constraints, retail Multinational Enterprises (MNEs) tap various capital resources to fund their overseas expansion. Effective, timely financing decision could enable retailers to capture opportunities that they would otherwise have forgone. More importantly, an acquirer's M&A financing decision may sequentially influence its future cash flows, financial leverage, subsequent financial decisions, ownership structure and profits of both acquirer and target. Given the substantial presence of financial constraints and the importance of financing strategy in cross-border M&A, the present study attempts to answer the research question: how do different types and degrees of financial constraints affect U.S. retail MNEs' cross-border M&A financing decisions? Based on cross-border takeovers with a U.S. retailer identified as the acquirer during 2002--2014, our findings suggest that abundant cash reserves and large unused debt capability are associated with Cash Only financing. We also find that acquirers are more likely to adopt Debt financing than Equity financing when they face meidum to high level of internal constraints and have large unused debt capbilities. Because majority of our sample are medium to large-sized, established, publicly-listed firms, our data do not support the hypotheses that the validity of pecking order would be challenged as the result of credit rationing in the debt market. As a result, our analysis partially supports the overarching hypothesis that Pecking Order Theory is conditional on financial constraints. The financial crisis was not found to have a significant impact on the choice between Cash Only and Debt financing. But our data is consistent with the observation that equity markets were the most volatile during the financial crisis. Our study should shed light on retail MNEs' best financing practices based on their financial conditions and should also inform policy makers' resource allocation decisions to help firms survive during economic tough times.