Liquidity mergers

► We study the interplay between corporate liquidity and asset reallocation. ► Distressed firms are acquired by liquid industry firms even without operational synergies. ► These acquisitions of distressed firms by liquid industry firms are denoted “liquidity mergers”. ► Liquidity mergers occur when assets are industry-specific, but can be transferred across firms. ► Corporate credit lines are more prevalent in industries with more liquidity mergers.