Acquisition Finance and Market Timing

Vermaelen, Theo; Groen-Xu, Moqi

doi:10.2139/ssrn.2335314

Cited by 7 publications

(9 citation statements)

References 77 publications

(53 reference statements)

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“…In the first case, where the motives are financial, a firm may undertake an M&A activity to adjust to the target capital structure by targeting a firm and absorbing the debt and equity of the acquired firm (Gugler and Konrad, 2002). Vermaelen and Xu (2012) found that 80% of their M&A sample firms out of 3,097, came closer to their target leverage, which was predicted by using Kayhan and Titman (2007) model, following the M&A. Yang (2011) states that most of the M&A decisions narrowed the gap between actual and target leverage ratios after the M&A.…”

Section: Introductionmentioning

confidence: 92%

Speed of adjustment toward capital structure in cross border and cross industry mergers and acquisitions

Shah¹,

Durukan²

2019

Pressacademia

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Purpose -In this study, the speed of adjustment (SOA) toward target capital structure is investigated in cross border and cross industry mergers and acquisitions (M&A). Methodology -As a measure of capital structure both book leverage (BLEV) and market leverage (MLEV) ratios are used in the analysis. The sample consists of 6,520 M&A deals for the period of 2000-2016. Findings -The findings show that for both the BLEV and MLEV, the cross border M&A deals move faster toward the target capital structure compared to non-cross border M&A deals. While the SOA rate for the same and cross industry M&A cases does not show too much difference for BLEV and MLEV. Conclusion -Overall the firms adjust to their target capital structure in maximum three years following the M&A

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Section: Introductionmentioning

confidence: 92%

Speed of adjustment toward capital structure in cross border and cross industry mergers and acquisitions

Shah¹,

Durukan²

2019

Pressacademia

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“…Many empirical studies have focused on the alternative financing sources and methods of payment in corporate takeovers. In most research (Faccio, Masulis 2005;Harford et al 2009;Vermaelen, Xu 2014), the 'method of payment' is used as synonymous with the 'sources of takeover financing'. Bessler, Drobetz and Zimmermann (2011) argue that the method of payment and the sources of financing are independent of each other and thus should be treated and analyzed separately as well as jointly.…”

Section: Financing Decisionsmentioning

confidence: 99%

Stock Market Reactions to Financing and Payment Decisions for European Mergers and Acquisitions

Bessler

Westerman

Kruizenga

2020

CEREM

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Aim: We analyze stock market reactions to merger and acquisition announcements for firms in Europe and contribute to the literature by providing empirical evidence how the decisions with respect to alternative financing sources (equity or debt) and the methods of payment (cash or stock) affect the magnitude of the valuation effects. Research design: An event study methodology is applied to 717 M&A transactions. We analyze the size of the cumulative abnormal returns using the financing sources and payment methods and other variables as the relevant determinants. Findings: The cumulative abnormal results suggest that target shareholders and bidder shareholders in private deals benefit from mergers and acquisitions. The effect found is centered around the announcement date, making our findings consistent with market efficiency. Debt financed deals outperform equity financed deals and cash paid M&A outperform stock paid M&As, due to information asymmetry, signaling and agency effects. Originality: This study adds to our understanding of the relevance of the financing sources and the payment methods for mergers and acquisitions in Europe. Implications: This study may help practitioners to better assess the valuation effects of alternative financing sources and payment methods when acquiring other firms. JEL: G32, G34

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“…I repeat the Mahalanobis matching technique as described above and match stock with cash acquirers based on variables including cash to total assets, return on equity, sales growth, the debt‐to‐equity ratio, the price‐to‐earnings ratio, total assets, bidder performance in the year prior to the acquisition, the standard deviation of bidder daily returns in the year prior to the acquisition, the relative size of the deal measured as the deal value over the market value of the bidder's equity, the market‐to‐book value ratio of the bidder as measured 42 days prior to the acquisition, and the actual level of debt. Vermaelen and Xu () and Uysal () show that the capital structure of the firm matters in the acquisition decision process. Pinkowitz, Sturgess, and Williamson () argue that cash rich firms are less likely to employ cash than stock takeovers.…”

Section: Are Stock Acquirers Comparable To Cash Acquirers?mentioning

confidence: 99%

The Benefits of Overvaluation: Evidence from Mergers and Acquisitions

Vagenas‐Nanos

2018

Financial Management

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Theoretical and empirical evidence debates whether acquirers can exploit their overvalued equity and create value by purchasing less overvalued or undervalued target firms. Shleifer and Vishny (2003) and Savor and Lu (2009) argue in favor of this, while Fu, Lin, and Officer (2013) and Akbulut (2013) provide evidence against. I revisit this issue and develop a quasi‐experimental design. The misvaluation effect for stock acquirers that are more overvalued than their targets is isolated and measured. My findings offer direct evidence in favor of the Shleifer and Vishny (2003) market‐timing hypothesis.

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Acquisition Finance and Market Timing

Cited by 7 publications

References 77 publications

Speed of adjustment toward capital structure in cross border and cross industry mergers and acquisitions

Speed of adjustment toward capital structure in cross border and cross industry mergers and acquisitions

Stock Market Reactions to Financing and Payment Decisions for European Mergers and Acquisitions

The Benefits of Overvaluation: Evidence from Mergers and Acquisitions

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