Do Stock-Financed Acquisitions Destroy Value? New Methods and Evidence

Andrey Golubov, Dimitris Petmezas and Nickolaos G. Travlos

Review of Finance, 2016, vol. 20, issue 1, 161-200

Abstract: We contribute to the debate on whether stock-financed acquisitions destroy value for shareholders. A stock-financed acquisition is a joint takeover/equity-issue event. Using seasoned equity offering announcement returns, we estimate through linear prediction and propensity-score matching the share price drop that stock acquirers experience due to the financing choice. Net of this effect, stock-financed acquisitions are not value destructive, and the method of payment generally has no further explanatory power in the cross-section of acquirer returns. Our evidence is largely inconsistent with the agency costs of overvalued equity hypothesis.

Date: 2016
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