What drives corporate minority acquisitions around the world? The case for financial constraints

In this paper, I examine minority block acquisitions from 1990 to 2009, as well as possible theories for the presence of equity stake purchases. I find that target firms are financially constrained. Acquisitions significantly increase their stock prices at announcement, along with their investment expenditures afterwards. In the two years following the acquisition, 27% (9%) issue new equity (debt) and raise 27% (24%) of their market capitalization. These findings support the theory that equity stakes certify the investment opportunities of target firms. I also find some support for the contracting motive, mostly in countries with good investor protection and a well-performing banking sector. •I study minority block acquisitions around the world from 1990 to 2009.•Target firms are financially constrained.•Block acquisitions significantly increase targets' stock prices at announcement.•Following the acquisition, targets issue more equity at a lower cost.•There are cross-country differences in the motives for block acquisitions.