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The wealth effects of mergers and acquisitions by dividend payers

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  • Glambosky, Mina
  • Jory, Surendranath Rakesh
  • Ngo, Thanh Ngoc

Abstract

We document a more favorable market reaction to the announcement of mergers and acquisitions (M&As) by dividend-paying acquirers when compared to non-paying acquirers. Dividend-paying acquirers are associated with greater improvements in return on assets post-M&A. Furthermore, dividend-paying acquirers hold higher levels of cash and are more likely to engage in cash financed deals. We infer that an existing dividend payment policy acts as a disciplinary mechanism forcing managers to engage in value-adding M&As, restricting self-motivated empire-building acquisitions. In order to preserve their ability to maintain dividends, dividend paying acquirers seek targets that can contribute to free cash flow.

Suggested Citation

  • Glambosky, Mina & Jory, Surendranath Rakesh & Ngo, Thanh Ngoc, 2020. "The wealth effects of mergers and acquisitions by dividend payers," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 154-165.
    • Handle: RePEc:eee:quaeco:v:78:y:2020:i:c:p:154-165
    DOI: 10.1016/j.qref.2020.01.013
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    More about this item

    Keywords

    Dividends; Dividend policy; Mergers and acquisitions; Takeovers; Event study;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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