Financial constraints and financing decision in cross-border mergers & acquisitions: evidence from the U.S. retail sector

ABSTRACT

Many global retailers in mature markets employ mergers and acquisitions (M&As) as an essential strategic tool to expand into foreign markets. Given the substantial presence of financial constraints and the importance of financing strategy in cross-border M&As, the present study attempts to answer the research question: how do different dimensions (e.g. internal, debt-focused, and equity-focused) and degrees of financial constraints affect U.S. retail multinational enterprises’ (MNEs) cross-border M&A financing decisions? Based on 91 cross-border M&As carried out by U.S. retailers during 2002–2014, our findings suggest that abundant cash reserves and large unused debt capability are associated with Cash Only financing. We also find that acquirers are more likely to adopt Debt financing than Equity financing when they face medium to high level of internal constraints but have large unused debt capabilities. Our study sheds light on retail MNEs’ best financing practices based on their financial conditions.

KEYWORDS:

• Cross-border M&As
• financial constraints
• financing source
• payment method
• retail sector

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. An unsecured, short-term loan issued by a corporation, typically with the maturities between 1 and 2 months being the average, with a 9 month maximum.

Additional information

Notes on contributors

Jie Li

Jie Li received her Ph.D. from Michigan State University and is an Assistant Professor in the School of Business at Truman State University. Her research focuses on consumer behavior and marketing/finance interface. Her work is published in Journal of Retailing and Consumer Services and The International Review of Retail, Distribution and Consumer Research.

Patricia Huddleston

Patricia Huddleston is a Professor of Retailing at Michigan State University. Her research focuses on the use of eye-tracking to evaluate consumer information processing of point of purchase retail display elements (e.g., signage, price) and how these elements motivate purchase intention. Her work has been published in publications such as the International Review of Retail, Distribution and Consumer Research, Journal of Retailing and Consumer Services, Journal of Product and Brand Management, and Hort Science.

Linda Good

Linda Good is Professor Emeritus at Michigan State University. Her research focuses on retail labor retention/turnover and international price/quality perceptions. Her work is published in journals such as Journal of Retailing, Journal of the Academy of Marketing Science, and Journal of Managerial Psychology.