Acquisitions of financially constrained targets

We examine the extent to which bidders’ stock returns at acquisition announcements reflect the financing needs of the target firm. We find that bidders of financially constrained targets pay lower acquisition premiums and earn higher announcement period cumulative abnormal returns than bidders of unconstrained targets. The lower premium and positive stock market reaction are both sources of value for bidders’ shareholders. Our results contrast the findings of the literature that document an insignificant wealth transfer to bidder shareholders