This paper examines the effects of the post-merger integration duration on acquiring firms’ leverage behavior before and after a merger, using a dynamic model in which full merger benefits cannot be consumed at the instant of a merger, but rather after a prespecified post-merger integration period. The model generates new implications related to acquiring firms’ leverage dynamics along with method of payment choice. Specifically, the model indicates that the post-merger integration duration is negatively associated with the market leverage of newly-merged firms at the time of merger completion and during the integration period. Further, acquirer managers are more likely to use equity to finance a merger when the integration duration is likely to be lengthy. Our empirical tests provide evidence consistent with the model implications.

We investigate the performance and characteristics of acquiring firms on 1148 M&A on the two Chinese stock markets from 1998 to 2003. Using the market model, the CAPM model and the buy-and-hold methods, we find significantly positive abnormal returns before (6 months) and upon M&A announcements, while the long-run abnormal returns (6 months) after M&A are insignificant. Within our sample, cash is the dominant payment method and the competition during M&A is low. The cross-sectional analysis on acquirers' market performance upon announcements shows that the political advantages of acquiring firms have a significantly positive impact on the acquirers' performance, while the economic advantages do not. Cross-provincial M&A and better corporate governance create value to acquiring firms. Finally, cash payment impacts positively and regulation development impacts negatively the performance of acquiring firms during M&A.