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The Choice Of Payment Method In European M&A

The choice of payment method in European mergers & acquisitions

Mara Faccio

Owen Graduate School of Management
Vanderbilt University
401 21st Avenue South
Nashville, TN 37203
and
Ronald W. Masulis
Owen Graduate School of Management
Vanderbilt University
401 21st Avenue South
Nashville, TN 37203

Version: February 28, 2004

We thank Utpal Bhattacharya, Harry DeAngelo, Tim Loughran, Rob Stambaugh (the editor) and especially an anonymous referee for his/her insightful comments and suggestions. We also want to thank seminar participants at the Melbourne Business School, University of Miami, University of New South Wales, University of Notre Dame, University of Pittsburgh, University of South Carolina, Vanderbilt University and the 16th Australasian Finance and Banking Conference for helpful comments. We are also appreciative of research support from the Financial Markets Research Center at Vanderbilt University.
The choice of payment method in European mergers & acquisitions
Abstract
We study merger and acquisition (M&A) payment choices of European bidders for publicly and privately held targets in the 1997-2000 period. Europe is an ideal venue for studying the importance of corporate governance in making M&A payment choices, given the large number of closely held firms, and the wide range of capital markets, institutional settings, laws and regulations. The tradeoff between corporate governance concerns and debt financing constraints is found to have a large bearing on the bidder’s payment choice. Consistent with earlier evidence, we find that several deal and target characteristics significantly affect the method of payment choice.
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Introduction
Global M&A activity has grown dramatically over the last ten years, bringing with it major changes in the organization and control of economic activity around the world. Yet, there is much about the M&A process that we do not fully understand, including the choice of payment method. Given the large...