LAUSR

Cash-rich acquirers perform better than their cash-poor counterparts in the presence of financial constraints, strong shareholder rights or both. This observation holds for both short and long term, for both the U.S. and the U.K, and for different measures of financial constraints and shareholder rights. Cash-rich acquirers underperform only when they are less financially constrained and their shareholders have weak rights. This result demonstrates that cash richness is value-enhancing when internal and external governance arrangements are appropriate. The positive cash holdings effect on acquirer performance can be explained by the precautionary motive.