Topic: Cash Composition and Corporate Control: Reexamining Agency Costs in Mergers and Acquisitions

Speaker: Assistant Professor Gabriele Lattanzio, Melbourne Business School, University of Melbourne

Host: Lecturer Meng Fanqi from RIEM

Time: September 23, 2025 (Tuesday) 10:00-11:30

Location: Conference Room 1211, Gezhi Building, Liulin Campus, SWUFE

Organizer: RIEM

Speaker's Profile

Gabriele Lattanzio is a Senior Lecturer in Finance at Melbourne Business School, University of Melbourne. Previously he held positions as an Assistant Professor at Nazarbayev University (Kazakhstan), Senior Lecturer at Monash University (Melbourne), and Visiting Assistant Professor at Southern Methodist University (Dallas). He received a BSc in Economics and Finance from Bocconi University (Milan) in 2013, an MSc in International Management (Energy Finance) from the Norwegian School of Economics (Bergen) in 2015, and a PhD in Finance from the University of Oklahoma in 2019. His research covers corporate finance and law & economics, with particular attention to the market for corporate control and the pricing of nonfinancial risks (e.g., environmental liabilities, cybersecurity risk). His work has been published in top peer‑reviewed journals such as the Journal of Financial and Quantitative Analysis, the Journal of Corporate Finance, and the Journal of Financial Markets. Over the past 12 months, his SSRN new-download ranking placed him in the top 10%.

Abstract

Do corporate cash holdings drive wasteful acquisitions, or can they be managed effectively to create value? We argue that resolving this long‑standing debate requires moving beyond the total cash amount to examine how firms allocate cash. Using a novel, hand‑collected database covering the detailed cash‑investment portfolio composition of 200 large U.S. public firms, merged with 1,414 M&A transactions from Compustat and SDC, we document a notable pattern: on the eve of cash acquisitions, acquirers actively rebalance their portfolios toward more liquid assets, primarily by selling tradable securities such as government and corporate bonds. This liquidity transformation does not occur prior to stock‑financed acquisitions. Further analysis shows that total cash holdings are unrelated to the likelihood of M&A—consistent with puzzling results in prior literature—but disaggregated holdings reveal that liquid cash significantly increases the probability of cash acquisitions, whereas tradable securities are negatively associated with acquisition activity. Our findings indicate that strategic cash management can mitigate agency costs, foster managerial long‑termism, and play a governance role in the financing and timing of corporate acquisitions, thereby reconciling decades of conflicting evidence on the link between cash holdings and M&A.