Taking Stock or Cashing In? Shareholder Style Preferences, Premiums and the Method of Payment
Timothy R. Burch
University of Miami - Department of Finance
Vikram K. Nanda
Georgia Institute of Technology - College of Management
March 1, 2012
We develop and test hypotheses on the impact of target shareholders investment style preferences on the method of payment and premiums in acquisitions. Stock offers (unlike cash offers) allow target shareholders to defer capital gains taxes. This deferral value, however, depends on target shareholders willingness to retain acquirer stock. The empirical findings support our hypotheses. Bid premiums in stock offers are negatively and jointly related to target shareholder tax liabilities and to variables proxying for target shareholder willingness to hold acquirer stock. Moreover, the difference between predicted cash and stock premiums due to these factors signi cantly explains the method of payment choice.
Number of Pages in PDF File: 74
Keywords: Mergers and acquisitions, method of payment, institutional ownership
JEL Classification: G34working papers series
Date posted: March 15, 2010 ; Last revised: March 21, 2012
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