Vermaelen, Theo and Xu, Moqi (2011) Acquisition finance, capital structure and market timing. The China Centre for Financial Research, Tsinghua University, Beijing, China.
We examine effects of capital structure management and misvaluation on the payment method in mergers and acquisitions. In a sample of 3,097 transactions, we find evidence both for leverage optimization and misvaluation as drivers for the decision to pay with cash or stock. Our evidence also shows that it is difficult to pay with overvalued stock unless justified by economic fundamentals. Few bidders try and often only succeed after going hostile. Paying with cash while capital structure optimization suggests stock payment is more common. These firms are reluctant to pay with undervalued stock and experience positive long-term excess returns.
|Item Type:||Monograph (Working Paper)|
|Additional Information:||© 2011 The China Centre for Financial Research, Tsinghua University|
|Uncontrolled Keywords:||mergers and acquisitions, capital structure, market timing, equity issues, share buybacks, mispricing|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
|Journal of Economic Literature Classification System:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
|Sets:||Departments > Finance
Collections > Economists Online
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