Do Stock-Financed Acquisitions Destroy Value? New Methods and Evidence

Review of Finance, Forthcoming

68 Pages Posted: 31 May 2011 Last revised: 21 Feb 2015

See all articles by Andrey Golubov

Andrey Golubov

University of Toronto - Rotman School of Management; European Corporate Governance Institute (ECGI)

Dimitris Petmezas

Durham University Business School

Nickolaos G. Travlos

ALBA Graduate Business School; University of Surrey

Date Written: February 20, 2015

Abstract

We contribute to the debate on whether stock-financed acquisitions destroy value for shareholders. A stock-financed acquisition is a joint takeover/equity-issue event. Using SEO announcement returns, we estimate through linear prediction and propensity-score matching the share price drop that stock acquirers experience due to the financing choice. Net of this effect, stock-financed acquisitions are not value destructive, and the method of payment generally has no further explanatory power in the cross-section of acquirer returns. Our evidence is largely inconsistent with the agency costs of overvalued equity hypothesis.

Keywords: Mergers and Acquisitions, Method of Payment, Abnormal Returns, Seasoned Equity Offerings, Agency Costs of Overvalued Equity

JEL Classification: G14, G32, G34, D82

Suggested Citation

Golubov, Andrey and Petmezas, Dimitris and Travlos, Nickolaos G. and Travlos, Nickolaos G., Do Stock-Financed Acquisitions Destroy Value? New Methods and Evidence (February 20, 2015). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1855731 or http://dx.doi.org/10.2139/ssrn.1855731

Andrey Golubov

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/andrey-golubov

Dimitris Petmezas

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Nickolaos G. Travlos (Contact Author)

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

HOME PAGE: http://www.alba.edu.gr

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

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