Real Option Study on Merger and Acquisition Investment and Financing Decisions

Abstract

This paper investigates the relationship between Merger and Acquisition (M&A) investment and the financing decisions influenced by market uncertainty. The study has shown that the M&A debt capacity decision influences the M&A investment timing and price decision. We also find out that making the decision of M&A debt capacity is based upon evaluating its influences on the M&A value and bankruptcy risk comprehensively. The M&A debt capacity can only be defined in a certain range.