Financial constraints and financing sources in mergers and acquisitions

Yulia Merkoulova, Branislav Zivanovic

Research output: Contribution to journalArticleResearchpeer-review


We study the effects of financing sources and financial constraints in mergers and acquisitions. We explicitly distinguish between methods of payment and financing used in takeovers and find that financial constraints have a strong influence on choices of both payment and financing methods. Financially constrained firms are less likely to pay for acquisitions in cash. Greater financial constraints are associated with greater use of equity financing, followed by internal funds, with debt as the least preferred financing alternative. Consistent with agency theory, more constrained bidders experience higher takeover announcement returns. However, we find financing sources to have little impact on abnormal returns.
Original languageEnglish
Article number101814
Number of pages20
JournalPacific Basin Finance Journal
Publication statusPublished - Sept 2022


  • Financing methods
  • Financial constraints
  • Mergers and acquisitions
  • Payment method
  • Pecking order theory
  • Agency theory

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