Graduation Year


Date of Submission


Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

Lisa Meulbroek

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This thesis examines the effect that pre-transaction leverage has on the success of mergers and acquisitions, by studying the level and type of leverage possessed by the acquiring firm in order to test whether debt is truly disciplining. Success is defined as both the 3-day announcement period stock price return, and the persistence of returns over the announcement period and the year following announcement. Past literature examines how the pre-transaction leverage affects the 3-day stock price return of the acquiring firm for transactions from 1960 to 1980. This thesis first updates the data and studies transactions from 1980 to 2018. Secondly, this thesis adds the methodology of measuring success by the persistence of returns. Finally, this paper examines the difference in disciplining value between junior and senior secured debt by studying how the level of senior secured debt in the acquirer’s capital structure affects M&A success. This thesis uses data from Capital IQ and both a simple leverage and ordered probit model in order to carry out the analysis. My findings suggest that debt has a statistically significant effect on the success of M&A transactions indicating that debt is truly disciplining. Lastly, I find a statistically significant difference in disciplining value between junior and senior secured debt.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.