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Corporate Cash Holdings and Acquisitions

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  • Erik Lie
  • Yixin Liu

Abstract

We find that acquirers’ announcement returns decline with their cash holdings, but only when at least part of the payment is in the form of stock. We further find evidence that acquirers that use stock payment are overvalued, especially when they have excess cash that they could have used instead. Collectively, our results suggest that investors interpret announcements of stock acquisitions as a signal that the acquirers’ equity is overvalued and that high cash holdings intensify this signal. However, our results are inconsistent with the common belief that cash holdings induce value†destroying acquisitions.

Suggested Citation

  • Erik Lie & Yixin Liu, 2018. "Corporate Cash Holdings and Acquisitions," Financial Management, Financial Management Association International, vol. 47(1), pages 159-173, March.
    • Handle: RePEc:bla:finmgt:v:47:y:2018:i:1:p:159-173
    DOI: 10.1111/fima.12185
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    References listed on IDEAS

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    2. Christof Beuselinck & Garen Markarian & Arnt Verriest, 2021. "Employee protection shocks and corporate cash holdings," Post-Print hal-03597869, HAL.
    3. Beuselinck, Christof & Markarian, Garen & Verriest, Arnt, 2021. "Employee protection shocks and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 69(C).
    4. Carlos J. O. Trejo‐Pech & Michael A. Gunderson & Dayton M. Lambert, 2021. "Mergers and acquisitions in the U.S. agribusiness sector, 1990–2017," Agribusiness, John Wiley & Sons, Ltd., vol. 37(4), pages 713-730, October.
    5. Obonyo, Tirimba, 2022. "Monetary policy and cross-border acquisitions," Finance Research Letters, Elsevier, vol. 50(C).
    6. Austin, Josh & Harris, Jeremiah & O'Brien, William, 2020. "Do the most prominent firms really make the worst deals? How selection issues affect inferences from M&A studies," Journal of Banking & Finance, Elsevier, vol. 118(C).

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