Stock or Cash? Explaining the Payment Method Choice of M&As and the Effect on Performance on the European Developed Markets
Abstract
We investigate what factors determine the choice of the payment method when choosing between
payment of stocks or cash during an acquisition or merger. Furthermore, we examine how that choice
of payment method affects the bidder’s performance in the short term by examining the changes in
the cumulative abnormal return. The sample consists of 2,647 transactions in the European Developed
Markets covering the years 1998 - 2021. Our results show that factors related to Capital
Structure, Deal Characteristics, Profitability of the Bidder and Non-Financial Characteristics drive
the choice of the payment method, similar to earlier findings. The results are further explained by
the theories of Opportunistic Behaviour and Rational Payment Design. Additionally, stock payments
create a significant negative cumulative abnormal return and a significantly lower return than cash
payments, based on an event window of three days.
Degree
Master 2-years
Other description
MSc in Finance
Collections
View/ Open
Date
2022-06-29Author
kollberg, gustav
skantze, john
Keywords
Payment Method
Stock Bid
Cash Bid
Determinants of the Payment Method
Cumulative Abnormal Return
Opportunistic Behaviour
Rational Payment Design
M&A
Information Asymmetry
Adverse Selection
Series/Report no.
2022:169
Language
eng