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Does payment method matter in cross-border acquisitions?

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  • Dutta, Shantanu
  • Saadi, Samir
  • Zhu, PengCheng

Abstract

In this study, we focus on 1300 completed deals (545 cross-border and 755 domestic deals) by Canadian acquirers between 1993 and 2002 to examine the effect of payment methods in the context of cross-border M&A deals. Our results show a significant and positive effect for stock-financed deals in the cross-border acquisitions. This result is robust to a set of commonly used control variables in the literature. In order to find a justification for such positive reactions for stock financed deals, we investigate the long-term operating performance of cross-border cash- and stock financed deals. Our results do not show any significant difference. It appears that market is overenthusiastic about the cross-border stock financed deals and overestimates the synergy gains. Market corrects for this overreaction for cross-border stock financed deals in the subsequent periods. We carry out a detailed buy-and-hold abnormal return (BHAR) analysis to evaluate the long term stock returns for these firms. Our results show that cross-border stock financed deals significantly underperform in the long-run compared to the cross-border cash financed deals. Further, we examine the role of stock payment in mitigating information asymmetry in cross-border deals and alleviating the risk arising from making acquisitions in a foreign market with lower corporate governance rating. Our results show that stock payment is viewed as a possible remedy for reducing information asymmetry and lowering corporate governance related risk in cross-border acquisitions.

Suggested Citation

  • Dutta, Shantanu & Saadi, Samir & Zhu, PengCheng, 2013. "Does payment method matter in cross-border acquisitions?," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 91-107.
    • Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:91-107
    DOI: 10.1016/j.iref.2012.06.005
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    More about this item

    Keywords

    Mergers and acquisitions; Cross-border acquisitions; Payment methods; Short- and long-term performances;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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