The study examines an old but unique event from a new perspective and provides important insights to the financial literature. The result suggests that the competition from the later-launched iShares funds can improve pricing efficiency but decrease liquidity of the corresponding existing country funds. Furthermore, these effects are more profound for emerging country funds than for developed country funds.
The study contributes to the literature that pre‐merger market sentiment plays a significant role in the choice of payment method in M&As and further impacts the market reactions to such related deals around the deal announcement date. Stock is more likely to be overvalued and chosen as the medium of exchange when the market is in the bullish periods. The higher investor sentiment prior to the deals setting under the cash payment, the better abnormal stock returns of such deals around the deal announcement date. The two commonly used sentiment indexes, BWI and CSI, are both representative for the market sentiment in relation to the choice of M&A payment methods, but the investor sentiment index, BWI, is more powerful on explaining the relationship with market reactions.
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