 Are stock- financed takeovers opportunistic?Karin Thorburn (), Bjorn Eckbo () and Tanakorn Makaew No 11974, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: The more the target knows about the bidder, the more difficult it is to pay with overpriced shares. Thus, under bidder opportunism, the fraction of stock in the deal payment is lower with better-informed targets. We test this simple prediction using information proxies reflecting industry relatedness and geographic location specific to the merging firms. We find instead that public bidders systematically use more stock in the payment when the target knows more about the bidder. While inconsistent with opportunism, this is as predicted when bidders are primarily concerned with adverse selection on the target side of the deal. Moreover, tests based on exogenous variation in bidder market-to-book ratios, identified using aggregate mutual fund outflows, also fail to support bidder opportunism. Finally, “cash-only†targets and potential competition from private bidders appear to place significant external pressure on public bidders to pay in cash. Keywords: Takeover bidding; Payment method; Mispricing; Cash payment; Stock payment; Information asymmetry; Opportunism; Governance; Mutual fund flow (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:11974 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.