Does short-selling potential influence merger and acquisition payment choice?

Marie Dutordoir, Norman C. Strong and Ping Sun

Journal of Financial Economics, 2022, vol. 144, issue 3, 761-779

Abstract: Announcements of stock-financed mergers and acquisitions (M&As) may attract short selling of bidder shares by merger arbitrageurs. We hypothesize that bidders with higher short-selling potential include a higher proportion of cash in their M&A payments to mitigate stock price declines resulting from arbitrage short sales. Consistent with this hypothesis, we find that the ex ante net lending supply of bidder shares has a positive impact on the percentage of cash in public target payments. Further tests, including a placebo analysis of public-to-private deals and an analysis of expected price pressure proxies, corroborate the impact of anticipated arbitrage-related price pressure on payment choice.

Keywords: Merger arbitrage; M&A payment choice; Short selling (search for similar items in EconPapers)
JEL-codes: G23 G32 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:3:p:761-779

DOI: 10.1016/j.jfineco.2022.03.002

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