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Stapled Financing, Value Certification, and Lending Efficiency

  • Hadiye Aslan and Praveen Kumar
Abstract

We examine whether financing commitments from a target firm’s financial advisor, in the form of stapled financing, provide certification of target value. Using a data set of leveraged buyouts spanning 2002–2011, and addressing endogeneity issues, we find that stapled financing has significant positive effects on sellers’ shareholder wealth, especially for targets suffering from greater adverse selection. Stapled financing facilitates deal financing by allowing buyers to obtain lower-cost and longer-maturity debt, and it is positively associated with bidding intensity. Investment banks offering stapled financing appear to trade off higher expected advisory fees against loss of lending efficiency ex post.

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Copyright
Corresponding author
* Aslan (corresponding author), haslan@gsu.edu, Robinson College of Business, Georgia State University; Kumar, pkumar@uh.edu, Bauer College of Business, University of Houston.
Footnotes
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1

We thank an anonymous referee for helpful comments. We also thank Audra Boone, Tom George, Andrey Golubov (European Finance Association (EFA) meeting discussant), Yaniv Grinstein, Jarrad Harford (Western Finance Association (WFA) meeting discussant), Paul Malatesta (the editor), Maureen O’Hara, Paul Povel, Raj Singh, Stuart Turnbull, and participants at seminars in various universities, the 2013 EFA meetings, and the 2013 WFA meetings for helpful comments or discussions.

Footnotes
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