Distressed Acquisitions Evidence from European Emerging Markets

Abstract

We analyze factors impacting the acquisition of distressed firms in European emerging markets during and after the global financial crisis (2007-2017) by assessing 22, 608 distressed acquisitions in 17 economies. We provide detailed evidence of the impact of financial ratios, legal form, ownership structure, firm size, and firm age, emphasizing the role of institutions. We show that institutions specifically related to quality and enforcement of insolvency law have lower probability of distressed acquisitions. The extent of corruption control and progress in banking reforms are also strong factors. The qualitative impact of institutions is similar, but its size is larger in less-advanced countries when compared to economically stronger ones. We take it as indirect evidence of the diminishing marginal returns of institutions with respect to their quality. The effect of institutions increased after the financial crisis, but as the economic situation improved, their impact declined.