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

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Date: May 2022
From: Review of Managerial Science(Vol. 16, Issue 4)
Publisher: Springer
Document Type: Report; Brief article
Length: 153 words

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Abstract :

Keywords: Mergers and acquisitions (M&A); Choice of payment methods; Rational payment design; Equity overvaluation and misvaluation; Information asymmetry 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. Author Affiliation: (1) Department of Business Administration, Economics, and Law, Technical University of Darmstadt, Hochschulstr. 1, 64289, Darmstadt, Germany (b) Article History: Registration Date: 04/29/2021 Received Date: 08/05/2020 Accepted Date: 04/29/2021 Online Date: 05/20/2021 Byline:

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Gale Document Number: GALE|A702342474