Analysis of payment methods in merger and acquisition deals within the United Kingdom

Akindele Babatunde Omotesho and Ayodeji Michael Obadire

Vilakshan - XIMB Journal of Management, 2024, vol. 22, issue 2, 178-197

Abstract: PurposeThis study aims to examine the effects of payment methods used in mergers and acquisitions (M&A) conducted by UK companies spanning the period from 2007 to 2019.Design/methodology/approachThe study used the estimated expected returns method to identify abnormal returns during the deal announcement period, applying event study analysis with both univariate and multivariate regression models to detect cumulative abnormal returns around the announcement timeframe.FindingsThe results show a short-term positive return increase for acquiring firms, controlling for deal-specific characteristics like target firm location and payment methods. The authors observed a preference for cash financing across domestic and cross-border transactions. Multivariate analysis revealed insignificance between payment methods and deal characteristics like cross-border acquisitions and diversification.Research limitations/implicationsThe study’s focus on publicly traded firms in the UK and the absence of a comparative analysis across different regions and markets limits the sample size and may impact the generalizability of findings.Practical implicationsThe study proposes three practical implications. Firstly, firms should tailor payment methods to each transaction, aligning with strategic goals to optimize value and mitigate risks. Secondly, decision-makers must prioritize comprehensive due diligence and strategic alignment throughout M&A processes to enhance success and maximize synergies. Finally, analysing broader strategic contexts and regulatory landscapes when structuring transactions enables goal attainment, such as market expansion or value creation.Social implicationsThe study’s findings can promote transparency and accountability among corporate decision-makers in M&A transactions. Stakeholders can advocate for transparent decision-making processes, enhancing trust in corporate governance.Originality/valueThis study provides valuable insights into the impact of payment methods on shareholder value in M&A transactions involving UK companies, informing strategic decision-making and contributing to the understanding of corporate finance dynamics.

Keywords: Mergers and acquisitions; Acquiring firms; Payment methods; Listed companies; Developed nations (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:xjmpps:xjm-04-2024-0074

DOI: 10.1108/XJM-04-2024-0074

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