Liquidity mergers

Heitor Almeida, Murillo Campello, Dirk Hackbarth

Research output: Contribution to journalArticlepeer-review


We study the interplay between corporate liquidity and asset reallocation. Our model shows that financially distressed firms are acquired by liquid firms in their industries even in the absence of operational synergies. We call these transactions "liquidity mergers," since their purpose is to reallocate liquidity to firms that are otherwise inefficiently terminated. We show that liquidity mergers are more likely to occur when industry-level asset-specificity is high and firm-level asset-specificity is low. We analyze firms' liquidity policies as a function of real asset reallocation, examining the trade-offs between cash and credit lines. We verify the model's prediction that liquidity mergers are more likely to occur in industries in which assets are industry-specific, but transferable across firms. We also show that firms are more likely to use credit lines (relative to cash) in industries in which liquidity mergers are more frequent.

Original languageEnglish (US)
Pages (from-to)526-558
Number of pages33
JournalJournal of Financial Economics
Issue number3
StatePublished - Dec 2011


  • Asset-specificity
  • Cash
  • Credit lines
  • Financial distress
  • Mergers and acquisitions

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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