Cash-rich Acquirers Do Not Always Make Bad Acquisitions: New Evidence

Ning Gao, Abdulkadir Mohamed

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Cash-rich acquirers on average perform better than their cash-poor counterparts. This observation is driven by financially constrained acquirers and by the deals made between the 1990s and 2000s. It is robust to alternative measures of financial constraints, to both the short term and the long term, and to the different institutional setting such as the U.K. We conclude cash richness primarily reflects acquirer managers’ private information of deal quality instead of agency costs. The precautionary motive can explain the positive cash holdings effect on acquirer performance.
Original languageEnglish
Pages (from-to)243-264
Number of pages22
JournalJournal of Corporate Finance
Early online date13 Apr 2018
Publication statusPublished - 1 Jun 2018


  • Acquirer performance
  • Cash holdings
  • Financial constraints
  • Financial slack
  • Mergers and acquisitions


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