BANKRUPTCY AVOIDANCE AS A MERGER INCENTIVE

Numerous motives for merger have been proposed and empirically evaluated. While the avoidance of bankruptcy has been suggested as a plausible motive for merger in the financial literature, this motive has been the object of scant empirical investigation. Although recent empirical evidence supports the existence of a bankruptcy motive, no research effort has yet identified those factors which explain why a financially distressed firm is acquired rather than destined to ultimate bankruptcy. The current study seeks to contribute to the literature on bankruptcy avoidance as a merger incentive by developing a logit model which explains, estimates and predicts the probability that a financially troubled firm will be acquired rather than end up bankrupt.