Do Stock-Financed Acquisitions Destroy Value? New Methods and Evidence
University of Toronto - Rotman School of Management
University of Surrey - Surrey Business School
Nickolaos G. Travlos
ALBA Graduate Business School
February 20, 2015
Review of Finance, Forthcoming
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.
Number of Pages in PDF File: 68
Keywords: Mergers and Acquisitions, Method of Payment, Abnormal Returns, Seasoned Equity Offerings, Agency Costs of Overvalued Equity
JEL Classification: G14, G32, G34, D82
Date posted: May 31, 2011 ; Last revised: February 21, 2015
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