Nevertheless, as Bayer-Monsanto shows, that takeovers can turn sour, even if they are credit-financed. One reason could be that since the late 1980s central banks have undermined the disciplinary role of debt by pushing interest rates to ever lower levels. With interest rates near zero and not being expected to rise, managers without internal funds can rely on cheap large-scale external funds to increase the firm size even if no significant efficiency gains are achieved. Hoffmann and Schnabl (2016) have argued that the persistently benign liquidity conditions created by central banks have released the pressure on enterprises for efficiency gains and innovation. Once, Kornai (1986) dubbed similar pattern for the central and eastern European planning economies as “soft budget constraints”.
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