Merger Target Selection and Financial Structure

Merger can be an instrument to change the capital structure of a firm. Our results show that the change in the debt-equity ratio that follows a merger is not onedirectional, random, or unintended. Acquiring firms use their acquision activity, particularly their choices of targets, as a means of adjusting their debt-equity ratio. The reason for this can be signal jamming. Financially motivated mergers are pooled with mergers that take place for reasons of market power or production synergies.