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Cash-rich bidders in UK have better announcement abnormal returns than cash-poor ones during 1984–2007, contrasting findings in the US. The positive cash reserve effect is from bidders of high long-run growth and those with nontrivial institutional holdings. Cashricher bidders also have better post-acquisition operating performance when their long-term growth is high and institutional holdings nontrivial. We argue that the precautionary motive drives UK bidders’ announcement cash reserve effects. Specifically, cash reserves facilitate bidder post-acquisition growth and cushion adverse cash-flow shocks. Our results meanwhile suggest strong shareholder power is necessary to ensure cash reserved for shareholders’ interests.

Bidder Cash Reserve Effect Under the Precautionary Motive: Evidence from UK