Undergraduate Honors Theses

Thesis Defended

Spring 2017

Document Type


Type of Thesis

Departmental Honors



First Advisor

Robert Dam


I study if managers make better investment decisions when required to use external capital providers by investigating cash acquisitions. Acquiring firms that held insufficient cash and short term investments to complete a documented cash acquisition between 1990 and 2016 are assumed to have been unable to finance the acquisition entirely with internal funds. Results show that bidder returns are 2.9 percentage points higher for acquisitions that could not be financed internally. The larger the size of a target relative to the combined firm, the more value investors perceive an acquisition as adding. These findings are consistent with the free cash flow theory, and show investors perceive debt as capable of reducing agency costs.