Date of Award

5-9-2014

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Omesh Kini

Second Advisor

Mark Chen

Third Advisor

Harley Ryan

Fourth Advisor

Robert Comment

Fifth Advisor

Vikram Nanda

Abstract

Essay 1: I examine sales of private firms to better understand the effect of relaxing financial constraints on firm value. My empirical tests exploit an exogenous shock to financial constraints caused by interstate bank branching deregulation. On a sample of 557 sales of private firms to public acquirers, I find that relaxed financial constraints lead to a statistically significant increase of 7.3% in valuation multiples of private targets. I also find a significant increase in private target valuation multiples benchmarked to public target valuation multiples. These effects are more pronounced for firms in the sample with below median annual sales. Acquirer returns are negatively impacted when financial constraints on private targets are relaxed. The evidence supports the prediction that relaxing financial constraints allows private targets to substitute bank credit for some of the financing benefits provided by acquirers and bargain for a higher valuation.

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