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The rationality of M&A targets in the choice of payment methods

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  • Michael Klitzka

    (Technical University of Darmstadt)

  • Jianan He

    (Technical University of Darmstadt)

  • Dirk Schiereck

    (Technical University of Darmstadt)

Abstract

This study analyzes mergers and acquisitions (M&A) payment methods in large transactions of public U.S. acquirers between 2009 and 2016. While we find consistent with previous evidence that asymmetric information between acquirers and targets significantly influences the choice of M&A payment methods, we show that contrary to prevailing findings in the literature, acquirers cannot exploit their overvaluation through stock-financed M&A at targets’ disadvantage. In addition, when facing larger uncertainty in the counterparty’s valuation, a higher ratio of cash is applied in M&A payment. Our results document that both acquirers and targets are rational in choosing M&A payment methods.

Suggested Citation

  • Michael Klitzka & Jianan He & Dirk Schiereck, 2022. "The rationality of M&A targets in the choice of payment methods," Review of Managerial Science, Springer, vol. 16(4), pages 933-967, May.
    • Handle: RePEc:spr:rvmgts:v:16:y:2022:i:4:d:10.1007_s11846-021-00469-6
    DOI: 10.1007/s11846-021-00469-6
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    More about this item

    Keywords

    Mergers and acquisitions (M&A); Choice of payment methods; Rational payment design; Equity overvaluation and misvaluation; Information asymmetry;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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