Payment Method Signals in M&A: The Role of Corporate Governance in Acquirer Announcement Returns

Abstract

This thesis examines whether corporate governance moderates the relationship between acquisition payment method and acquirer announcement returns. Drawing on signalling and agency theory, the study investigates whether board independence and CEO-chairman duality affect the market's reaction to cash- and equity-financed acquisitions among U.S. acquiring firms. Using an event study of 4,694 U.S. acquisitions from 2010 to 2026, the findings provide strong support for H1a and H1b: equity-financed acquirers earn a mean five-day CAR of −1.96 percent, compared to +0.23 percent for cash-financed acquirers, a difference of 2.19 percentage points that remains statistically significant after controlling for firm characteristics, year effects, and industry effects. No support is found for H2a or H2b. This null result is attributed partly to compressed governance variation in the post-Sarbanes-Oxley environment, where board independence averages approximately 84 percent across the sample with limited cross-sectional variance. The findings confirm that the payment method signal documented by Travlos (1987) remains economically and statistically relevant in modern U.S. capital markets, while suggesting that formal board characteristics may be too coarse to detect governance moderation effects in a heavily regulated institutional setting.