Do cash stockpiles fuel cash acquisitions?

Lee Pinkowitz, Jason Sturgess and Rohan Williamson

Journal of Corporate Finance, 2013, vol. 23, issue C, 128-149

Abstract: U.S. firms currently hold a $2trillion cash stockpile. We examine if cash stockpiles fuel cash acquisitions by studying the method of payment decision for cash-rich firms. Surprisingly, cash-rich firms are 23% less likely to make cash bids than stock bids, relative to firms that are not cash rich. We examine several potential explanations related to omitted variable bias and endogeneity and the result remains. More specifically, the results are robust to explanations related to agency, financial constraints, tax-related explanations, equity overvaluation, and capital structure. Our evidence implies that the link between cash stockpiles and cash acquisitions is not obvious.

Keywords: Acquisitions; Cash holdings; Cash stockpiles; Cash rich firms; Method of payment; Capital structure (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 G34 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:23:y:2013:i:c:p:128-149

DOI: 10.1016/j.jcorpfin.2013.08.003

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