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THE EFFECTS OF OVERPAYMENT AND FORM OF FINANCING ON BIDDER RETURNS IN MERGERS AND TENDER OFFERS
Author(s) -
Sung Hyun Mo
Publication year - 1993
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1993.tb00153.x
Subject(s) - bidding , cash , tender offer , stock (firearms) , shareholder , business , finance , mergers and acquisitions , economics , monetary economics , pecking order , financial economics , marketing , mechanical engineering , corporate governance , engineering , evolutionary biology , biology
In this paper I examine the effects of overpayment and form of financing on bidding firms' stock returns and the determinants of the form of financing in mergers and tender offers. First, I find that in the 1980s potential overpayments to target shareholders and the form of financing are important for explaining cross‐sectional differences in bidding firms' returns upon the announcement of mergers or tender offers. Second, I find that in the 1980s cash offers were likely to be chosen by cash‐rich firms relative to their industry, and stock exchange offers were likely to be chosen by normal cash‐generating firms relative to their industry. The latter finding is consistent with the pecking order hypothesis and casts doubt on recent signaling explanations of the form of financing.