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Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions

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Author Info
 Amihud, Yakov
Lev, Baruch
Travlos, Nickolaos G
Abstract

The authors test the proposition that corporate control considerations motivate the means of investment financing-cash (and debt) or stock. Corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock, which dilutes their holdings and increases the risk of losing control. Their empirical results support this hypothesis: in corporate acquisitions, the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing. Also, the previously observed negative bidders' abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership. Copyright 1990 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 45 (1990)
Issue (Month): 2 (June)
Pages: 603-16
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Handle: RePEc:bla:jfinan:v:45:y:1990:i:2:p:603-16

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  1. Helen Short & Kevin Keasey & Darren Duxbury, 2002. "Capital Structure, Management Ownership and Large External Shareholders: A UK Analysis," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 9(3), pages 375-399, November. [Downloadable!] (restricted)
  2. Geoffrey Shuetrim & Philip Lowe & Steve Morling, 1993. "The Determinants of Corporate Leverage: A Panel Data Analysis," RBA Research Discussion Papers rdp9313, Reserve Bank of Australia. [Downloadable!]
  3. Karen Mills & Steven Morling & Warren Tease, 1994. "The Influence of Financial Factors on Corporate Investment," RBA Research Discussion Papers rdp9402, Reserve Bank of Australia. [Downloadable!]
  4. Linda Allen & Julapa Jagtiani & Stavros Peristiani & Anthony Saunders, 2002. "The role of bank advisors in mergers and acquisitions," Staff Reports 143, Federal Reserve Bank of New York. [Downloadable!]
  5. Ninon Kohers, 2004. "Acquisitions of private targets: the unique shareholder wealth implications," Applied Financial Economics, Taylor and Francis Journals, vol. 14(16), pages 1151-1165, November. [Downloadable!] (restricted)
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