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Full-Stock-Payment Marginalization in Merger and Acquisition Transactions

Author

Listed:
  • Eric de Bodt

    (Université Lille, EA 4112–LSMRC, F-59000 Lille, France)

  • Jean-Gabriel Cousin

    (SKEMA Business School, F-59777 Euralille, France)

  • Richard Roll

    (California Institute of Technology, Pasadena, California 91125)

Abstract

The number of merger and acquisition (M&A) transactions paid fully in stock in the U.S. market declined sharply after 2001, when pooling and goodwill amortization were abolished by the Financial Accounting Standards Board. Did this accounting rule change really have such far reaching implications? Using a difference-in-differences test and Canada as a counterfactual, this study reveals that it did. We also report several other results confirming the role of pooling abolishment, including (i) that the decrease in full stock payment relates to CEO incentives and (ii) that previously documented determinants of the M&A mode of payment cannot explain the post-pooling abolishment pattern. These results are also robust to controls for various factors, such as the Internet bubble, the exclusion of cross-border deals, the presence of Canadian cross-listed firms, the use of a constant sample of acquirers across the pooling and post-pooling abolishment periods, the use of Europe as an alternative counterfactual, and controls for the SEC Rule 10b-18 share repurchase safe harbor amendments of 2003. This paper was accepted by Shivaram Rajgopal, accounting.

Suggested Citation

  • Eric de Bodt & Jean-Gabriel Cousin & Richard Roll, 2018. "Full-Stock-Payment Marginalization in Merger and Acquisition Transactions," Management Science, INFORMS, vol. 64(2), pages 760-783, February.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:2:p:760-783
    DOI: mnsc.2016.2635
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    References listed on IDEAS

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    Cited by:

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    3. de Bodt, Eric & Cousin, Jean-Gabriel & Officer, Micah S. & Roll, Richard, 2024. "The deterrence effect of M&A regulatory enforcements," Journal of Corporate Finance, Elsevier, vol. 85(C).
    4. Balogh, Attila & Creedy, Usha & Wright, Danika, 2022. "Time to acquire: Regulatory burden and M&A activity," International Review of Financial Analysis, Elsevier, vol. 82(C).
    5. Austin, Rebekah E. & Dunham, Lee M., 2022. "Do FinTech acquisitions improve the operating performance or risk profiles of acquiring firms?," Journal of Economics and Business, Elsevier, vol. 121(C).
    6. Meng, Bo & Vijh, Anand M., 2021. "Stock merger activity and industry performance," Journal of Banking & Finance, Elsevier, vol. 129(C).
    7. Eckbo, B. Espen & Makaew, Tanakorn & Thorburn, Karin S., 2018. "Are stock-financed takeovers opportunistic?," Journal of Financial Economics, Elsevier, vol. 128(3), pages 443-465.
    8. Anusha Chari, 2020. "The International Market for Corporate Control," NBER Working Papers 26843, National Bureau of Economic Research, Inc.
    9. Dutordoir, Marie & Strong, Norman C. & Sun, Ping, 2022. "Does short-selling potential influence merger and acquisition payment choice?," Journal of Financial Economics, Elsevier, vol. 144(3), pages 761-779.

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