Overvalued Equity or Stable Cash: Insights from the M&A Landscape in Sweden

Abstract

This thesis explores how the choice of financing affects the performance of acquiring firms in Swedish M&A deals between 2000 and 2024. A dataset of 215 transactions is applied on both an event study and calendar-time portfolio analysis to examine short- and long-term effects. The results show that stock-financed deals perform better than cash-financed ones around the announcement date, which challenges the traditional view that stock signals overvaluation. Although, in the long run, stock-financed acquisitions underperform significantly on a risk-adjusted basis, while cash-financed deals also show negative returns but to a lesser extent. These results highlight that the financing method continues to matter, even in a market like Sweden where transparency and investor protection are high.