Financial constraints and financing decision in cross-border mergers & acquisitions: evidence from the U.S. retail sector

ABSTRACT Many global retailers in mature markets employ mergers and acquisitions (M&As) as an essential strategic tool to expand into foreign markets. Given the substantial presence of financial constraints and the importance of financing strategy in cross-border M&As, the present study attempts to answer the research question: how do different dimensions (e.g. internal, debt-focused, and equity-focused) and degrees of financial constraints affect U.S. retail multinational enterprises’ (MNEs) cross-border M&A financing decisions? Based on 91 cross-border M&As carried out by U.S. retailers during 2002–2014, our findings suggest that abundant cash reserves and large unused debt capability are associated with Cash Only financing. We also find that acquirers are more likely to adopt Debt financing than Equity financing when they face medium to high level of internal constraints but have large unused debt capabilities. Our study sheds light on retail MNEs’ best financing practices based on their financial conditions.