Bound by Debt or Driven by the Market?
(2026) BUSN79 20261Department of Business Administration
- Abstract
- Purpose: To examine whether an acquirer’s risk exposure affects the acquisition premium paid
in public-to-public M&A transactions, specifically isolating the effects of leverage and stock
return volatility alongside the moderating role of free cash flow.
Methodology: The study employs multivariate OLS regressions with year and industry fixed
effects and heteroskedasticity-robust standard errors to examine how leverage, stock return
volatility, and free cash flow interactions relate to 4-week pre-announcement acquisition
premiums. Robustness tests assess result sensitivity.
Theoretical perspectives: The framework uses agency theory, the free cash flow hypothesis, the
hubris hypothesis, and the information asymmetry framework.
... (More) - Purpose: To examine whether an acquirer’s risk exposure affects the acquisition premium paid
in public-to-public M&A transactions, specifically isolating the effects of leverage and stock
return volatility alongside the moderating role of free cash flow.
Methodology: The study employs multivariate OLS regressions with year and industry fixed
effects and heteroskedasticity-robust standard errors to examine how leverage, stock return
volatility, and free cash flow interactions relate to 4-week pre-announcement acquisition
premiums. Robustness tests assess result sensitivity.
Theoretical perspectives: The framework uses agency theory, the free cash flow hypothesis, the
hubris hypothesis, and the information asymmetry framework.
Empirical foundation: The study is based on 1,654 completed public-to-public M&A
transactions involving US targets, announced between 2000 and 2025.
Conclusion: Baseline regressions show no statistically significant relationship between leverage
or volatility and the premium, suggesting that external governance and market conditions
neutralise firm-specific risk. However, the interaction model indicates a significant debt
disciplining effect, but only among cash-poor acquirers. Overall, risk exposure does not seem to
drive the acquisition premium. Instead, debt constrains bidding behaviour only when internal
resources are limited. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/student-papers/record/9245306
- author
- Enocson, Karl LU and Johansson Agopian, Julianna LU
- supervisor
-
- Diem Nguyen LU
- organization
- course
- BUSN79 20261
- year
- 2026
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- M&A, Acquisition Premium, Leverage, Stock Return Volatility, Free Cash Flow
- language
- English
- id
- 9245306
- date added to LUP
- 2026-07-01 12:35:20
- date last changed
- 2026-07-01 12:35:20
@misc{9245306,
abstract = {{Purpose: To examine whether an acquirer’s risk exposure affects the acquisition premium paid
in public-to-public M&A transactions, specifically isolating the effects of leverage and stock
return volatility alongside the moderating role of free cash flow.
Methodology: The study employs multivariate OLS regressions with year and industry fixed
effects and heteroskedasticity-robust standard errors to examine how leverage, stock return
volatility, and free cash flow interactions relate to 4-week pre-announcement acquisition
premiums. Robustness tests assess result sensitivity.
Theoretical perspectives: The framework uses agency theory, the free cash flow hypothesis, the
hubris hypothesis, and the information asymmetry framework.
Empirical foundation: The study is based on 1,654 completed public-to-public M&A
transactions involving US targets, announced between 2000 and 2025.
Conclusion: Baseline regressions show no statistically significant relationship between leverage
or volatility and the premium, suggesting that external governance and market conditions
neutralise firm-specific risk. However, the interaction model indicates a significant debt
disciplining effect, but only among cash-poor acquirers. Overall, risk exposure does not seem to
drive the acquisition premium. Instead, debt constrains bidding behaviour only when internal
resources are limited.}},
author = {{Enocson, Karl and Johansson Agopian, Julianna}},
language = {{eng}},
note = {{Student Paper}},
title = {{Bound by Debt or Driven by the Market?}},
year = {{2026}},
}