Leverage, premium and timing in corporate acquisitions

Abstract This paper investigates how leverage affects the dynamics of acquisitions. Pursuing this objective, the optimal leverage, premium and timing are jointly determined. We show that leverage increases with growth prospects (acquisition synergies), whereas an ambiguous effect is produced by volatility. Additionally, we show that levered acquisitions occur sooner and lead to higher premiums to target firms, when compared to a deal fully financed by equity. These impacts are similar to those produced by taxation.