Hostname: page-component-cd9895bd7-gxg78 Total loading time: 0 Render date: 2024-12-26T19:56:53.313Z Has data issue: false hasContentIssue false
  • English
  • Français

Stapled Financing, Value Certification, and Lending Efficiency

Published online by Cambridge University Press:  21 April 2017

Hadiye Aslan  and
Praveen Kumar
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We examine whether financing commitments from a target firm’s financial advisor, in the form of stapled financing, provide certification of target value. Using a data set of leveraged buyouts spanning 2002–2011, and addressing endogeneity issues, we find that stapled financing has significant positive effects on sellers’ shareholder wealth, especially for targets suffering from greater adverse selection. Stapled financing facilitates deal financing by allowing buyers to obtain lower-cost and longer-maturity debt, and it is positively associated with bidding intensity. Investment banks offering stapled financing appear to trade off higher expected advisory fees against loss of lending efficiency ex post.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 2 , April 2017 , pp. 677 - 703
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1

We thank an anonymous referee for helpful comments. We also thank Audra Boone, Tom George, Andrey Golubov (European Finance Association (EFA) meeting discussant), Yaniv Grinstein, Jarrad Harford (Western Finance Association (WFA) meeting discussant), Paul Malatesta (the editor), Maureen O’Hara, Paul Povel, Raj Singh, Stuart Turnbull, and participants at seminars in various universities, the 2013 EFA meetings, and the 2013 WFA meetings for helpful comments or discussions.

References

Allen, F.“The Market for Information and the Origin of Financial Intermediation.” Journal of Financial Intermediation, 1 (1990), 3–30.CrossRefGoogle Scholar
Allen, L., and Peristiani, S.. “Loan Underpricing and the Provision of Merger Advisory Services.” Journal of Banking and Finance, 31 (2007), 3539–3562.CrossRefGoogle Scholar
Amihud, Y.“Illiquidity and Stock Returns: Cross Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 31–56.CrossRefGoogle Scholar
Amihud, Y.; Mendelson, H.; and Lauterbach, B.. “Market Microstructure and Securities Value: Evidence from the Tel Aviv Exchange.” Journal of Financial Economics, 45 (1997), 365–390.CrossRefGoogle Scholar
Angbazo, L.; Mei, J.; and Saunders, A.. “Credit Spreads in the Market for Highly Leveraged Transaction Loans.” Journal of Banking and Finance, 22 (1998), 1249–1282.Google Scholar
Aslan, H., and Kumar, P.. “Strategic Ownership Structure and the Cost of Debt.” Review of Financial Studies, 25 (2012), 2257–2299.CrossRefGoogle Scholar
Bargeron, L.; Schlingemann, F.; Stulz, R.; and Zutter, C.. “Why Do Private Acquirers Pay So Little Compared to Public Acquirers?” Journal of Financial Economics, 89 (2008), 375–390.Google Scholar
Barth, M.; Kasznik, R.; and McNichols, M.. “Analyst Coverage and Intangible Assets.” Journal of Accounting Research, 39 (2001), 1–34.CrossRefGoogle Scholar
Beatty, R., and Ritter, J.. “Investment Banking, Reputation and Underpricing of Initial Public Offerings.” Journal of Financial Economics, 15 (1986), 213–232.CrossRefGoogle Scholar
Bharath, S.; Pasquariello, P.; and Wu, G.. “Does Asymmetric Information Drive Capital Structure Decisions?” Review of Financial Studies, 22 (2009), 3211–3243.CrossRefGoogle Scholar
Bhattacharya, S.“Imperfect Information, Dividend Policy, and ‘The Bird in the Hand’ Fallacy.” Bell Journal of Economics, 10 (1979), 259–270.CrossRefGoogle Scholar
Boone, A. L., and Mulherin, J.. “Do Private Equity Consortiums Impede Takeover Competition?” Working Paper, Kansas State University and University of Georgia (2008).Google Scholar
Boone, A. L., and Mulherin, J.. “Do Private Equity Consortiums Facilitate Collusion in Takeover Bidding?” Journal of Corporate Finance, 17 (2011), 1475–1495.CrossRefGoogle Scholar
Campbell, J., and Taksler, G.. “Equity Volatility and Corporate Bond Yields.” Journal of Finance, 58 (2003), 2321–2349.CrossRefGoogle Scholar
Capron, L., and Pistre, N.. “When Do Acquirers Earn Abnormal Returns?” Strategic Management Journal, 23 (2002), 781–794.CrossRefGoogle Scholar
Carter, R., and Manaster, S.. “Initial Public Offerings and Underwriter Reputation.” Journal of Finance, 45 (1990), 1045–1067.CrossRefGoogle Scholar
Chon, G., and Das, A.. “A Ruling to Chill Wall Street.” Wall Street Journal (Feb. 18, 2011), C1.Google Scholar
Coase, R.“The Nature of the Firms.” Economica, 4 (1937), 386–405.CrossRefGoogle Scholar
Dechow, P., and Dichev, I.. “The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors.” Accounting Review, 77 (2002), 35–59.Google Scholar
Diamond, D.“Financial Intermediation and Delegated Monitoring.” Review of Economic Studies, 51 (1984), 393–414.CrossRefGoogle Scholar
Diamond, D., and Verrecchia, R.. “Disclosure, Liquidity, and the Cost of Capital.” Journal of Finance, 46 (1991), 1325–1359.CrossRefGoogle Scholar
Erickson, T., and Whited, T.. “Measurement Error and the Relationship between Investment and q .” Journal of Political Economy, 108 (2000), 1027–1057.CrossRefGoogle Scholar
French, K., and McCormick, R.. “Sealed Bids, Sunk Costs, and the Process of Competition.” Journal of Business, 57 (1984), 417–441.CrossRefGoogle Scholar
Guo, S.; Hotchkiss, E.; and Song, W.. “Do Buyouts (Still) Create Value?” Journal of Finance, 66 (2011), 479–517.CrossRefGoogle Scholar
Heckman, J.“Sample Selection Bias as a Specification Error.” Econometrica, 47 (1979), 153–161.CrossRefGoogle Scholar
Jensen, M., and Meckling, W.. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, 3 (1976), 305–360.CrossRefGoogle Scholar
Jensen, M., and Ruback, R.. “The Market for Corporate Control.” Journal of Financial Economics, 11 (1983), 5–50.CrossRefGoogle Scholar
Kale, J. R.; Kini, O.; and Ryan, H.. “Financial Advisors and Shareholder Wealth Gains in Corporate Takeovers.” Journal of Financial and Quantitative Analysis, 38 (2003), 475–501.CrossRefGoogle Scholar
Kaplan, S., and Stein, J.. “The Evolution of Buyout Pricing and Financial Structure in the 1980s.” Quarterly Journal of Economics, 108 (1993), 313–357.CrossRefGoogle Scholar
Karpoff, J.“The Relation between Price Changes and Trading Volume: A Survey.” Journal of Financial and Quantitative Analysis, 22 (1987), 109–126.CrossRefGoogle Scholar
Leland, H., and Pyle, D.. “Informational Asymmetries, Financial Structure and Financial Intermediation.” Journal of Finance, 32 (1977), 371–387.CrossRefGoogle Scholar
Logue, D.“On the Pricing of Unseasoned Equity Issues: 1965–1969.” Journal of Financial and Quantitative Analysis, 8 (1973), 91–103.CrossRefGoogle Scholar
Maddala, G. S. Limited-Dependent and Qualitative Variables in Econometrics. Cambridge, UK: Cambridge University Press (1983).CrossRefGoogle Scholar
Marshall, R. C., and Marx, L.. “The Vulnerability of Auctions to Bidder Collusion.” Quarterly Journal of Economics, 124 (2009), 883–910.CrossRefGoogle Scholar
Mehran, H., and Peristiani, S.. “Financial Visibility and the Decision to Go Private.” Review of Financial Studies, 23 (2009), 519–547.CrossRefGoogle Scholar
Mehran, H., and Stulz, R.. “The Economics of Conflicts of Interest in Financial Institutions.” Journal of Financial Economics, 85 (2007), 267–296.CrossRefGoogle Scholar
Milgrom, P., and Roberts, J.. “Price and Advertising Signals of Product Quality.” Journal of Financial Economics, 94 (1986), 796–821.Google Scholar
Myers, S.“The Determinants of Corporate Borrowing.” Journal of Financial Economics, 5 (1977), 147–175.CrossRefGoogle Scholar
Pastor, L., and Stambaugh, R.. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy, 111 (2003), 642–685.CrossRefGoogle Scholar
Officer, M.; Ozbas, O.; and Sensoy, B.. “Club Deals in Leveraged Buyouts.” Journal of Financial Economics, 98 (2010), 214–240.CrossRefGoogle Scholar
Povel, P., and Singh, R.. “Stapled Finance.” Journal of Finance, 65 (2010), 927–953.CrossRefGoogle Scholar
Puri, M.“Commercial Banks in Investment Banking: Conflict of Interest or Certification Role?” Journal of Financial Economics, 40 (1996), 373–401.CrossRefGoogle Scholar
Riley, J.“Informational Equilibrium.” Econometrica, 47 (1979), 331–359.CrossRefGoogle Scholar
Spence, A. M.“Job Market Signalling.” Quarterly Journal of Economics, 90 (1973), 225–243.Google Scholar
Thomas, S.“Firm Diversification and Asymmetric Information: Evidence from Analysts Forecasts and Earnings Announcements.” Journal of Financial Economics, 64 (2002), 373–396.CrossRefGoogle Scholar
Vermaelen, T.“Common Stock Repurchases and Market Signalling.” Journal of Financial Economics, 9 (1981), 139–183.CrossRefGoogle Scholar
Williamson, O. Markets and Hierarchies: Analysis and Antitrust Implications. New York, NY: Free Press (1975).Google Scholar
Supplementary material: File

Aslan and Kumar supplementary material

Aslan and Kumar supplementary material

Download Aslan and Kumar supplementary material(File)
File 156 KB