GAINS TO BIDDER FIRMS IN CASH AND SECURITIES TRANSACTIONS

James W. Wansley · William R. Lane · Ho C. Yang

86 citations0/0 files storedFinancial Review

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Corporate Finance and Governance Financial Markets and Investment Strategies Merger and Competition Analysis

Abstract

ABSTRACT This paper presents empirical test results of alternative hypotheses regarding differences in returns to shareholders of bidding firms that choose different payment methods (cash or securities). The evidence is consistent with the payment method signaling hypothesis, which asserts that when management of the bidding firm believes its own stock to be overvalued (undervalued), securities (cash) will be the preferred payment method. The results are not consistent with either the overpayment hypothesis or the present value/hubris hypothesis. The findings also explain the conflicting results reported in prior work on gains to bidding firms.

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References

1986The Hubris Hypothesis of Corporate Takeovers 1977Estimating betas from nonsynchronous data 1983The gains to bidding firms from merger 1974Risk and return: The case of merging firms 1980Merger proposals, management discretion and stockholder wealth 1980Interfirm Tender Offers and the Market for Corporate Control 1984Going Private: Minority Freezeouts and Stockholder Wealth 1982The Impact of Merger Bids on the Participating Firms' Security Holders

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2000Characteristics of merging firms 2003Takeovers: Their Causes and Consequences 2006The Relevance of Target Accounting Quality to the Long‐Term Success of Cross‐Border Mergers 2012Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions 2011The adverse selection effect of corporate cash reserve: Evidence from acquisitions solely financed by stock 2011Competition among Sellers in Securities Auctions

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