Does payment method matter in cross-border acquisitions?

Shantanu Dutta, Samir Saadi and PengCheng Zhu

International Review of Economics & Finance, 2013, vol. 25, issue C, 91-107

Abstract: In this study, we focus on 1300 completed deals (545 cross-border and 755 domestic deals) by Canadian acquirers between 1993 and 2002 to examine the effect of payment methods in the context of cross-border M&A deals. Our results show a significant and positive effect for stock-financed deals in the cross-border acquisitions. This result is robust to a set of commonly used control variables in the literature. In order to find a justification for such positive reactions for stock financed deals, we investigate the long-term operating performance of cross-border cash- and stock financed deals. Our results do not show any significant difference. It appears that market is overenthusiastic about the cross-border stock financed deals and overestimates the synergy gains. Market corrects for this overreaction for cross-border stock financed deals in the subsequent periods. We carry out a detailed buy-and-hold abnormal return (BHAR) analysis to evaluate the long term stock returns for these firms. Our results show that cross-border stock financed deals significantly underperform in the long-run compared to the cross-border cash financed deals. Further, we examine the role of stock payment in mitigating information asymmetry in cross-border deals and alleviating the risk arising from making acquisitions in a foreign market with lower corporate governance rating. Our results show that stock payment is viewed as a possible remedy for reducing information asymmetry and lowering corporate governance related risk in cross-border acquisitions.

Keywords: Mergers and acquisitions; Cross-border acquisitions; Payment methods; Short- and long-term performances (search for similar items in EconPapers)
JEL-codes: G14 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 (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:25:y:2013:i:c:p:91-107

DOI: 10.1016/j.iref.2012.06.005

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