• Asset Tangibility, the Creditor Influence, and Risk Management Role in M&A Decisions

Abstract

Purpose – This paper examines whether asset tangibility affects the risk management role of mergers and acquisitions (M&As) and whether the effect of asset tangibility changes with creditor influence.

Design/methodology/approach – Based on a study by Garfinkel and Hankins (2011), this research modifies their model by taking the impact of asset tangibility into account. The empirical results are estimated using a logistical model.

Findings – Asset tangibility increases the likelihood of firms conducting M&As as their risk management tool when they face increased income uncertainty. Such financing-investment effects regarding asset tangibility are more pronounced with firms with less specific real assets, firms less influenced by bank creditors and those with higher leverage and well-governed firms.

Research limitations – This study complements existing research by illustrating the importance of financial feasibility in risk management decisions. In addition, this study highlights the association between asset structure and corporate risk management decisions.

Practical implications – This study not only shows how a firm’s financial feasibility affects its risk management decisions but also explores the rationale behind managers’ responses to increased uncertainty.

Value – This paper extends the scope of prior studies investigating risk management decisions via M&As by providing an alternative perspective－the financing-investment relationship. It documents the financial feasibility matters concerning the risk management role of M&As.

Keywords – Asset Tangibility, Mergers and Acquisitions, Risk Management, Creditor Influence