Open AccessStock Market Reactions to Financing and Payment Decisions for European Mergers and Acquisitions
Author(s) -
Wolfgang Bessler,
Wim Westerman,
David Kruizenga
Publication year - 2020
Publication title -
central european review of economics and management
Language(s) - English
Resource type - Journals
ISSN - 2544-0365
DOI - 10.29015/cerem.868
Subject(s) - mergers and acquisitions , business , payment , finance , event study , shareholder , equity (law) , valuation (finance) , valuation effects , debt financing , cash , stock (firearms) , monetary economics , debt , stock market , agency cost , economics , corporate governance , mechanical engineering , paleontology , context (archaeology) , horse , political science , law , biology , engineering
Aim: We analyze stock market reactions to merger and acquisition announcements for firms in Europe and contribute to the literature by providing empirical evidence how the decisions with respect to alternative financing sources (equity or debt) and the methods of payment (cash or stock) affect the magnitude of the valuation effects.
Research design: An event study methodology is applied to 717 M&A transactions. We analyze the size of the cumulative abnormal returns using the financing sources and payment methods and other variables as the relevant determinants.
Findings: The cumulative abnormal results suggest that target shareholders and bidder shareholders in private deals benefit from mergers and acquisitions. The effect found is centered around the announcement date, making our findings consistent with market efficiency. Debt financed deals outperform equity financed deals and cash paid M&A outperform stock paid M&As, due to information asymmetry, signaling and agency effects.
Originality: This study adds to our understanding of the relevance of the financing sources and the payment methods for mergers and acquisitions in Europe.
Implications: This study may help practitioners to better assess the valuation effects of alternative financing sources and payment methods when acquiring other firms.
JEL: G32, G34