Financing and Regulatory Frictions in Mergers and Acquisitions

Eden Quxian Zhang
Eden Quxian Zhang
  • Speaker
Monash Business School, Monash University

Event Information

PhD Defence
Thu. 11 Jan. 2018
Eden Quxian Zhang
Senate Hall, Erasmus Building, Woudestein Campus


This dissertation studies how financial frictions and regulatory costs affect mergers and acquisitions (M&A). The first conclusion is that financial distress drives firms to make diversifying acquisitions. Acquisitions made by distressed firms in recent years are economically important. Exploiting a natural experiment, this thesis identifies the causal link between financial distress and acquisitions. The evidence shows that distressed firms acquire to diversify bankruptcy risk, rather than to capture external growth opportunities and revive growth. The second conclusion of the dissertation is that political connections of banks affect the government auctions of distressed banks during the Great Recession. Lobbying financial regulators significantly increases a bidding bank’s probability of winning. The post-acquisition operating performance is worse for lobbying acquirers than for their non-lobbying counterparts, suggesting that lobbying results in a less efficient allocation of failed banks. The results provide new insights into the bank resolution process and its political economy. Thirdly, the dissertation shows that the regulatory review process for M&As poses significant costs and risk for merging firms. An adverse antitrust review outcome reduces shareholder wealth and the probability of deal success. Mitigating such risk via lobbying may benefit shareholders. Consistently, acquirers strategically adjust lobbying expenditures around the merger announcement. The results highlight the role of political connections in corporate investments under regulatory uncertainty.

Peter Roosenboom
Professor of Entrepreneurial Finance and Private Equity
  • Promotor
Patrick Verwijmeren
Professor of Corporate Finance
  • Member Doctoral Committee
Wolf Wagner
Professor of Finance
  • Member Doctoral Committee
David Yermack
David Yermack
  • Member Doctoral Committee
Marieke van der Poel
Marieke van der Poel
  • Daily Supervisor