The wealth effects of mergers and acquisitions by dividend payers

Mina Glambosky, Surendranath Rakesh Jory and Thanh Ngoc Ngo

The Quarterly Review of Economics and Finance, 2020, vol. 78, issue C, 154-165

Abstract: We document a more favorable market reaction to the announcement of mergers and acquisitions (M&As) by dividend-paying acquirers when compared to non-paying acquirers. Dividend-paying acquirers are associated with greater improvements in return on assets post-M&A. Furthermore, dividend-paying acquirers hold higher levels of cash and are more likely to engage in cash financed deals. We infer that an existing dividend payment policy acts as a disciplinary mechanism forcing managers to engage in value-adding M&As, restricting self-motivated empire-building acquisitions. In order to preserve their ability to maintain dividends, dividend paying acquirers seek targets that can contribute to free cash flow.

Keywords: Dividends; Dividend policy; Mergers and acquisitions; Takeovers; Event study (search for similar items in EconPapers)
JEL-codes: G34 G35 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:78:y:2020:i:c:p:154-165

DOI: 10.1016/j.qref.2020.01.013

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