The rationality of M&A targets in the choice of payment methods

Michael Klitzka, Jianan He () and Dirk Schiereck
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Michael Klitzka: Technical University of Darmstadt
Jianan He: Technical University of Darmstadt
Dirk Schiereck: Technical University of Darmstadt

Review of Managerial Science, 2022, vol. 16, issue 4, No 1, 933-967

Abstract: Abstract This study analyzes mergers and acquisitions (M&A) payment methods in large transactions of public U.S. acquirers between 2009 and 2016. While we find consistent with previous evidence that asymmetric information between acquirers and targets significantly influences the choice of M&A payment methods, we show that contrary to prevailing findings in the literature, acquirers cannot exploit their overvaluation through stock-financed M&A at targets’ disadvantage. In addition, when facing larger uncertainty in the counterparty’s valuation, a higher ratio of cash is applied in M&A payment. Our results document that both acquirers and targets are rational in choosing M&A payment methods.

Keywords: Mergers and acquisitions (M&A); Choice of payment methods; Rational payment design; Equity overvaluation and misvaluation; Information asymmetry; 91G50 Corporate finance (dividends; real options; etc.) (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11846-021-00469-6

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