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Acquisition finance and market timing

Vermaelen, Theo and Xu, Moqi (2014) Acquisition finance and market timing. Journal of Corporate Finance, 25 . pp. 73-91. ISSN 0929-1199

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Abstract

Bidders have an incentive to pay with stock when their shares are overvalued, but target firms should be reluctant to accept such overvalued payment. In a sample of 2978 acquisitions, we find that stock payment is readily accepted only when the bidder can justify the financing decision in terms of such economic fundamentals as optimal capital structure. Yet even when the fundamentals justify stock payment, paying with cash is common. In that way, firms can preclude paying with undervalued stock and are more likely to experience positive long-term excess returns.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-corpor...
Additional Information: © 2013 Elsevier B.V.
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G0 - General
Sets: Departments > Finance
Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 06 Jan 2014 09:46
URL: http://eprints.lse.ac.uk/55120/

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