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The Influence of M&A on Acquirers’ Capital Structures—New Evidence of Dynamic Trade-off Theory
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TitleThe Influence of M&A on Acquirers’ Capital Structures—New Evidence of Dynamic Trade-off Theory  
AuthorTao Qizhi, Zhu Xianglon, Li Liang, Luo Ronghua  
OrganizationSchool of Finance, Southwestern University of Finance and Economics 
Key WordsMerger and Acquisition; Capital Structure 
AbstractThis article investigates the influence of M&A on Chinese acquirers’ capital structures to test the dynamic trade-off theory. Based upon the 158 deals announced between 2000 and 2010, this study forecasts acquirers’ optimal leverage ratios by Tobit model and then tracks the effects of M&A on leverage ratio deviations. Empirical results show that acquirers’ capital structures deviate from the optimal level before the deals, and acquirers make use of M&A to diminish the deviations; because of the over-adjustment, acquirers converge to the optimal leverage ratios in the long-run post acquisitions. Due to the three modifications on the classic methodology, this research significantly supports the dynamic trade-off theory, and is more consistent with industrial evidences than any previous research. The robust test shows that Chinese firms’ format on capital structure is highly consistent to those of the US firms. Moreover, the cash payment is negatively related with announcement abnormal returns. This research also uses standard partial adjustment model to test the adjustment speed of acquirers’ leverage ratios after M&A, and the results further support the dynamic trade-off theory. 
Serial NumberWP619 
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