IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v25y2000i1p67-94.html
   My bibliography  Save this article

The Method of Payment Decision in Australian Takeovers: An Investigation of Causes and Effects

Author

Listed:
  • Raymond Silva Da Rosa
  • H. Y. Izan
  • Adam Steinbeck
  • Terry Walter

Abstract

We research and document that the abnormal returns earned by Australian bidders and targets over the bid announcement period are not significantly associated with the proposed medium of exchange, i.e. cash or shares. However, over the long-term post-bid period, bidders who offer shares significantly under-perform regardless of bid outcome. Importantly, this result is after controlling for firm size, survival bias and method of return computation. Finally, the size of the target relative to the bidder firm and the variability of bidding firms' share price prior to the bid announcement are both positively associated with the probability of a share offer.

Suggested Citation

  • Raymond Silva Da Rosa & H. Y. Izan & Adam Steinbeck & Terry Walter, 2000. "The Method of Payment Decision in Australian Takeovers: An Investigation of Causes and Effects," Australian Journal of Management, Australian School of Business, vol. 25(1), pages 67-94, June.
    • Handle: RePEc:sae:ausman:v:25:y:2000:i:1:p:67-94
    DOI: 10.1177/031289620002500106
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/031289620002500106
    Download Restriction: no
    File URL: https://libkey.io/10.1177/031289620002500106?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Blume, Marshall E. & Stambaugh, Robert F., 1983. "Biases in computed returns : An application to the size effect," Journal of Financial Economics, Elsevier, vol. 12(3), pages 387-404, November.
    2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    3. Loughran, Tim & Vijh, Anand M, 1997. "Do Long-Term Shareholders Benefit from Corporate Acquisitions?," Journal of Finance, American Finance Association, vol. 52(5), pages 1765-1790, December.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Eckbo, B. Espen & Langohr, Herwig, 1989. "Information disclosure, method of payment, and takeover premiums : Public and private tender offers in France," Journal of Financial Economics, Elsevier, vol. 24(2), pages 363-403.
    6. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    7. Blackburn, Virginia L & Dark, Frederick H & Hanson, Robert C, 1997. "Mergers, Method of Payment and Returns to Manager- and Owner-Controlled Firms," The Financial Review, Eastern Finance Association, vol. 32(3), pages 569-589, August.
    8. Martin, Kenneth J, 1996. "The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership," Journal of Finance, American Finance Association, vol. 51(4), pages 1227-1246, September.
    9. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    10. Wallace N. Davidson III & Louis T.W. Cheng, 1997. "Target Firm Returns: Does the Form of Payment Affect Abnormal Returns?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(3), pages 465-479, April.
    11. Travlos, Nickolaos G, 1987. "Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns," Journal of Finance, American Finance Association, vol. 42(4), pages 943-963, September.
    12. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    13. Julian R. Franks & Robert S. Harris & Cohn Mayer, 1988. "Means of Payment in Takeovers: Results for the United Kingdom and the United States," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 221-264, National Bureau of Economic Research, Inc.
    14. Jarrell, Gregg A & Brickley, James A & Netter, Jeffry M, 1988. "The Market for Corporate Control: The Empirical Evidence Since 1980," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 49-68, Winter.
    15. Wallace N. Davidson III & Louis T.W. Cheng, 1997. "Target Firm Returns: Does the Form of Payment Affect Abnormal Returns?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(3), pages 465-479.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Raymond da Silva Rosa & Robin Limmack & Supriadi & David Woodliff, 2004. "The Equity Wealth Effects of Method of Payment in Takeover Bids for Privately Held Firms," Australian Journal of Management, Australian School of Business, vol. 29(1_suppl), pages 93-110, June.
    2. Humphery-Jenner, Mark L. & Powell, Ronan G., 2011. "Firm size, takeover profitability, and the effectiveness of the market for corporate control: Does the absence of anti-takeover provisions make a difference?," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 418-437, June.
    3. Danny Yeung, 2012. "The Impact of Institutional Ownership: A Study of the Australian Equity Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2012, January-A.
    4. Karen Benson & Millicent Chang & Philip Gray & Sue Wright, 2019. "The enduring and evolving influence of Ball and Brown (1968)," Australian Journal of Management, Australian School of Business, vol. 44(1), pages 153-159, February.
    5. Bedford, Anna & Bugeja, Martin & Czernkowski, Robert & Bond, David, 2023. "Is the effect of shared auditors driven by shared audit partners? The case of M&As," The British Accounting Review, Elsevier, vol. 55(2).
    6. Amporn SOONGSWANG, 2012. "Do M&A Enhance Values? Mixed Methods And Evidence," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(3(21)/ Fa), pages 312-325.
    7. Danny Yeung, 2012. "The Impact of Institutional Ownership: A Study of the Australian Equity Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 11, July-Dece.
    8. Raymond da Silva Rosa & Terry Walter, 2004. "Australian Mergers and Acquisitions Since the 1980s: What Do We Know and What Remains to Be Done?," Australian Journal of Management, Australian School of Business, vol. 29(1_suppl), pages 1-1, June.
    9. Ben Lau & Alex Proimos, 2010. "The underperformance of equity‐financed bidders," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 6(1), pages 4-23, February.
    10. Mathur MAYANK, 2020. "Macroeconomic View of Mergers and Acquisitions in the Technology Industry," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 147-155.
    11. Martin Bugeja, 2005. "The ‘Independence’ of Expert Opinions in Corporate Takeovers: Agreeing With Directors’ Recommendations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1861-1885, November.
    12. Bugeja, Martin, 2007. "Voluntary use of independent valuation advice by target firm boards in takeovers," Pacific-Basin Finance Journal, Elsevier, vol. 15(4), pages 368-387, September.
    13. Chang, Millicent & Yu, Jing & Adamson, William, 2018. "How directors trade and learn during takeovers," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 184-197.
    14. Winson Chan & David Emanuel, 2011. "Board governance and acquirers’ returns: A study of Australian acquisitions," Australian Journal of Management, Australian School of Business, vol. 36(2), pages 174-199, August.
    15. Shams, Syed M.M. & Gunasekarage, Abeyratna & Colombage, Sisira R.N., 2013. "Does the organisational form of the target influence market reaction to acquisition announcements? Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 89-108.
    16. Raymond da Silva Rosa & Thuy Nguyen & Terry Walter, 2004. "Market Returns to Acquirers of Substantial Assets," Australian Journal of Management, Australian School of Business, vol. 29(1_suppl), pages 111-133, June.
    17. Merkoulova, Yulia & Zivanovic, Branislav, 2022. "Financial constraints and financing sources in mergers and acquisitions," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    18. Martin Bugeja & Raymond da Silva Rosa & HY Izan & Susan Ngan, 2016. "To scheme or bid? Choice of takeover method and impact on premium," Australian Journal of Management, Australian School of Business, vol. 41(2), pages 212-243, May.
    19. Hossain, Md Mosharraf & Pham, Man Duy (Marty) & Islam, Nahid, 2021. "The performance and motivation of serial acquisitions: Evidence from Australia," International Review of Financial Analysis, Elsevier, vol. 77(C).
    20. Hanh T. Le & Emma Schultz, 2007. "Toeholds and the Bidder Shareholder Wealth Effects of Takeover Announcements," Australian Journal of Management, Australian School of Business, vol. 32(2), pages 315-344, December.
    21. Bugeja, Martin, 2011. "Takeover premiums and the perception of auditor independence and reputation," The British Accounting Review, Elsevier, vol. 43(4), pages 278-293.
    22. Martin Bugeja, 2011. "Foreign takeovers of Australian listed entities," Australian Journal of Management, Australian School of Business, vol. 36(1), pages 89-107, April.
    23. Hoa Luong & Lien Duong & John Evans, 2022. "CEO pay disparity, takeover premiums and bidder performance in Australia: efficient contracting or managerial power?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 143-179, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    2. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    3. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    4. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    5. Mateev, Miroslav & Andonov, Kristiyan, 2016. "Do cross-border and domestic bidding firms perform differently? New evidence from continental Europe and the UK," Research in International Business and Finance, Elsevier, vol. 37(C), pages 327-349.
    6. Bhagat, Sanjai & Dong, Ming & Hirshleifer, David & Noah, Robert, 2005. "Do tender offers create value? New methods and evidence," Journal of Financial Economics, Elsevier, vol. 76(1), pages 3-60, April.
    7. Robert W. Faff & Abeyratna Gunasekarage & Syed M. M. Shams, 2020. "Does takeover competition affect acquisition choices and bidding firm performance? Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3581-3619, December.
    8. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    9. Mario Fischer, 2015. "Challenging the payment effect in bank-financed takeovers," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(4), pages 347-376, October.
    10. Fischer, Mario, 2017. "The source of financing in mergers and acquisitions," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 227-239.
    11. Gao, Ning, 2011. "The adverse selection effect of corporate cash reserve: Evidence from acquisitions solely financed by stock," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 789-808, September.
    12. Sudi Sudarsanam & Ashraf A. Mahate, 2003. "Glamour Acquirers, Method of Payment and Post‐acquisition Performance: The UK Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(1‐2), pages 299-342, January.
    13. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    14. repec:aly:journl:201831 is not listed on IDEAS
    15. Vermaelen, Theo & Xu, Moqi, 2014. "Acquisition finance and market timing," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 73-91.
    16. Malmendier, Ulrike & Opp, Marcus M. & Saidi, Farzad, 2016. "Target revaluation after failed takeover attempts: Cash versus stock," Journal of Financial Economics, Elsevier, vol. 119(1), pages 92-106.
    17. Martynova, Marina & Renneboog, Luc, 2009. "What determines the financing decision in corporate takeovers: Cost of capital, agency problems, or the means of payment?," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 290-315, June.
    18. Li, Yuanzhi, 2018. "Dissecting bidder security returns on payment methods," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 207-220.
    19. Yang, Junhong & Guariglia, Alessandra & Guo, Jie (Michael), 2019. "To what extent does corporate liquidity affect M&A decisions, method of payment and performance? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 54(C), pages 128-152.
    20. Massoud, Nadia & Song, Keke & Tran, Nam, 2024. "Lender effects on gains from mergers and acquisitions," Journal of Banking & Finance, Elsevier, vol. 163(C).
    21. Sorin Daniliuc & Chris Bilson & Greg Shailer, 2014. "The Interaction of Post-Acquisition Integration and Acquisition Focus in Relation to Long-Run Performance," International Review of Finance, International Review of Finance Ltd., vol. 14(4), pages 587-612, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:25:y:2000:i:1:p:67-94. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.