Financial Constraints and the Method of Payment in Mergers and Acquisitions

2011 ◽  
Author(s):  
Abdullah A. Alshwer ◽  
Valeriy Sibilkov ◽  
Nataliya S. Zaiats
Keyword(s):  
Mergers And Acquisitions ◽  
Financial Constraints ◽  
Method Of Payment

Mergers and acquisitions: implications for acquirers’ market risk

2019 ◽  
Vol 45 (4) ◽  
pp. 545-562 ◽  
Author(s):  
Sailesh Tanna ◽  
Ibrahim Yousef
Keyword(s):  
Mergers And Acquisitions ◽  
Prior Experience ◽  
Systematic Risk ◽  
Cross Sectional ◽  
Content Type ◽  
Cash Payment ◽  
Increase Risk ◽  
Method Of Payment ◽  
Mean Differences ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of mergers and acquisitions (M&As) on acquiring company systematic risk using a global sample of 34,221 completed deals that occurred between the years 1977 and 2012, covering 163 countries and 85 industries. Design/methodology/approach Acquirers’ systematic risk (beta) is calculated using the capital asset pricing model. The change in acquirers’ beta post-merger is obtained using event study and tested for mean differences across various sub-categories of deals. Cross-sectional regressions are then performed to test several hypotheses relating to the impact of diversification, method of payment, target status and prior experience on acquirers’ risk. Findings For the overall sample, the evidence suggests that acquirers’ beta tends to increase post-merger, but only in cases where their pre-merger risk is relatively low in relation to the risk of the market. The authors also show that cash payment deals for publicly listed targets contribute to reducing acquirers’ risk while stock payment increase risk. Diversification, whether global or across industry, has no significant impact on risk. On the other hand, for serial acquirers, the risk is increased significantly with more M&As. Originality/value This study contributes in a unique way by providing global evidence on acquirers’ systematic risk using a very large and diverse sample of M&A deals and investigating not only the impact of diversification on risk but also of other deal characteristics (e.g. method of payment, target status, acquirers’ prior experience) which have not been previously examined.

Deal Initiation in Mergers and Acquisitions

2018 ◽  
Vol 53 (6) ◽  
pp. 2389-2430 ◽  
Author(s):  
Ronald W. Masulis ◽  
Serif Aziz Simsir
Keyword(s):  
Mergers And Acquisitions ◽  
Information Asymmetry ◽  
Private Information ◽  
Financial Constraints ◽  
Abnormal Returns ◽  
Financial Conditions ◽  
Self Selection ◽  
Weak Target ◽  
Merger Announcements

We investigate the effects of target initiation in M&As. We find target-initiated deals are common and that important motives for these deals are target economic weakness, financial constraints, and negative economy-wide shocks. We determine that average takeover premia, target abnormal returns around merger announcements, and deal value to EBITDA multiples are significantly lower in target-initiated deals. This gap is not explained by weak target financial conditions. Adjusting for self-selection, we conclude that target managers’ private information is a major driver of lower premia in target-initiated deals. This gap widens as information asymmetry between merger partners rises.

scholarly journals Does The Financing Decision Help To Understand Market Reaction Around Mergers And Acquisitions?

2014 ◽  
Vol 30 (2) ◽  
pp. 465 ◽  
Author(s):  
Houssam Bouzgarrou ◽  
Wael Louhichi
Keyword(s):  
Mergers And Acquisitions ◽  
Market Reaction ◽  
Common Law ◽  
Pecking Order ◽  
Internal Funds ◽  
Study Methodology ◽  
Specific Factors ◽  
Method Of Payment ◽  
The Difference ◽  
The Impact

Few studies distinguish between the method of payment and the means of financing in mergers and acquisitions. This paper aims to test if the financing means has incremental information beyond that contained in the payment means. To answer this question, we consider a sample of 265 deals undertaken by French listed acquires between January 1997 and December 2008. We decompose our sample according to the method of payment (cash, stock or mixed payment). The difference of means test shows that the impact of the three methods of payment is not statistically significant. In order to take the analysis further, we then broke our sample down according to both the method of payment and the means of financing (debt, equity or internal funds). The difference of means test, the event study methodology and OLS regressions reveal that takeovers financed by debt outperform those financed by other means of financing. These findings confirm the monitoring role of debt and support the pecking order preferences. Finally, our OLS regressions highlight that market reaction depends also on legal environment (common law vs. non common law) on acquisition characteristics such as deal size and on acquirer specific factors such as size and growth opportunities.

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