 What determines the financing decision in corporate takeovers: Cost of capital, agency problems, or the means of payment?Marina Martynova and Luc Renneboog Journal of Corporate Finance, 2009, vol. 15, issue 3, 290-315 Abstract: How is a takeover bid financed and what is its impact on the expected value creation of the takeover? An analysis of the sources of transaction financing has been largely ignored in the takeover literature. Using a unique dataset, we show that external sources of financing (debt and equity) are frequently employed in takeovers involving cash payments. Acquisitions with the same means of payment but different sources of transaction funding are in fact quite distinct. Acquisitions financed with internally generated funds significantly underperform those financed with debt. The takeover financing decision is influenced by the bidder's pecking order preferences, its growth potential, and its corporate governance environment, all of which are related to the cost of external capital. The choice of equity versus internal cash or debt financing also depends on the bidder's strategic preferences with respect to the means of payment. Keywords: Mergers; and; acquisitions; Takeovers; Means; of; payment; Financing; decision; Cost; of; capital; Sources; of; financing; Agency; problem; Pecking; order; Corporate; governance; regulation; Nested; logit (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:eee:corfin:v:15:y:2009:i:3:p:290-315 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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