The rationality of M&A targets in the choice of payment methods

Michael Klitzka, Jianan He and Dirk Schiereck

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: This study analyzes mergers and acquisitions (M&A) payment methods in large transactions of public U.S. acquirers between 2009 and 2016. While we find consistent with previous evidence that asymmetric information between acquirers and targets significantly influences the choice of M&A payment methods, we show that contrary to prevailing findings in the literature, acquirers cannot exploit their overvaluation through stock-financed M&A at targets’ disadvantage. In addition, when facing larger uncertainty in the counterparty’s valuation, a higher ratio of cash is applied in M&A payment. Our results document that both acquirers and targets are rational in choosing M&A payment methods.

Date: 2021
New Economics Papers: this item is included in nep-dcm
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Published in Review of Managerial Science 4 (2021) : pp. 933-967

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https://link.springer.com/article/10.1007/s11846-021-00469-6
https://tuprints.ulb.tu-darmstadt.de/23548

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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:128973

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