Cash acquirers: free cash flow, shareholder monitoring, and shareholder returns

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Cash acquirers: free cash flow, shareholder monitoring, and shareholder returns

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dc.contributor.author Gregory, Alan en_US
dc.contributor.author Wang, Yuan-Hsin en_US
dc.date.accessioned 2011-06-14T13:33:48Z en_US
dc.date.accessioned 2013-03-20T11:12:07Z
dc.date.issued 2010-10 en_US
dc.description.abstract Although Jensen (1988) argues that high levels of free cash flow and unused borrowing capacity are likely to encourage low-value mergers, the “pecking order” theory offers a different perspective, where managers conserve cash flow to undertake positive NPV investments. We argue that the stronger position of shareholders, as opposed to firm managers, in the UK compared to the US makes the Free Cash Flow (FCF) hypothesis less likely to be relevant in the UK. In support of this, by analysing both announcement period and long term returns, we show that for a comprehensive sample of UK cash acquirers there is little support for the Free Cash Flow (FCF) hypothesis. Instead, our evidence is consistent with greater shareholder monitoring mitigating any agency problem associated with high FCF. Our results are also consistent with low FCF firms having a greater likelihood of being financially distressed. en_GB
dc.identifier.uri http://hdl.handle.net/10036/3133 en_US
dc.language.iso en en_GB
dc.publisher University of Exeter en_GB
dc.relation.ispartofseries Discussion paper no. 10/07 en_GB
dc.relation.url http://business-school.exeter.ac.uk/research/areas/topics/finance/outputs/publication/?id=674 en_GB
dc.subject free cash flow en_GB
dc.subject shareholder monitoring en_GB
dc.subject acquisitions en_GB
dc.title Cash acquirers: free cash flow, shareholder monitoring, and shareholder returns en_GB
dc.type Working Paper en_GB
dc.date.available 2011-06-14T13:33:48Z en_US
dc.date.available 2013-03-20T11:12:07Z
dc.description Discussion paper en_GB


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