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Taking stock or cashing in? Shareholder style preferences, premiums and the method of payment

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  • Burch, Timothy R.
  • Nanda, Vikram
  • Silveri, Sabatino

Abstract

We develop and test hypotheses on the impact of target shareholders' investment style preferences on the method of payment and premiums in acquisitions. Stock offers (unlike cash offers) allow target shareholders to defer capital gains taxes. This deferral value, however, depends on target shareholders' willingness to retain acquirer stock. The empirical findings support our hypotheses. Bid premiums in stock offers are negatively and jointly related to target shareholder tax liabilities and to variables proxying for target shareholder willingness to hold acquirer stock. Moreover, the difference between predicted cash and stock premiums due to these factors significantly explains the method of payment choice.

Suggested Citation

  • Burch, Timothy R. & Nanda, Vikram & Silveri, Sabatino, 2012. "Taking stock or cashing in? Shareholder style preferences, premiums and the method of payment," Journal of Empirical Finance, Elsevier, vol. 19(4), pages 558-582.
    • Handle: RePEc:eee:empfin:v:19:y:2012:i:4:p:558-582
    DOI: 10.1016/j.jempfin.2012.03.005
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    More about this item

    Keywords

    Mergers and acquisitions; Method of payment; Institutional ownership;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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