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http://ssrn.com/abstract=2356900
 
 

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Are Stock-Financed Takeovers Opportunistic?


B. Espen Eckbo


Dartmouth College - Tuck School of Business; European Corporate Governance Institute (ECGI)

Tanakorn Makaew


University of South Carolina - Moore School of Business

Karin S. Thorburn


Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

November 2013

ECGI - Finance Working Paper No. 393/2013
Tuck School of Business Working Paper No. 2013-121

Abstract:     
The estimated probability that a bidder offers all-stock as payment in takeovers increases with measures of market overvaluation of bidder shares. However, when we instrument the bidder pricing error using aggregate mutual fund flows, the reverse happens: greater bidder overvaluation reduces the all-stock payment propensity. Since the price pressure created by aggregate fund flows is exogenous to bidder fundamentals -- while directly impacting bidder pricing errors -- this evidence rejects the notion that all-stock financed takeovers are opportunistic. Bidders paying with stock tend to be small, non-dividend paying growth companies with low leverage, suggesting that financing constraints play an important role in the all-stock payment decision. Moreover, all-stock payment is more likely in high-tech industries, when the two firms operate in highly complementary industries, and when the target is geographically close, indicating that targets in all-stock bids are relatively informed about bidder value. Overall, our evidence does not suggest a particular role for bidder mispricing in driving the all-stock payment decision in takeovers.

Number of Pages in PDF File: 60

Keywords: Takeovers, payment method, mispricing, capital structure, industry relatedness, geographic location

JEL Classification: G32, G34, L2

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Date posted: November 21, 2013 ; Last revised: January 26, 2014

Suggested Citation

Eckbo, B. Espen and Makaew, Tanakorn and Thorburn, Karin S., Are Stock-Financed Takeovers Opportunistic? (November 2013). ECGI - Finance Working Paper No. 393/2013; Tuck School of Business Working Paper No. 2013-121. Available at SSRN: http://ssrn.com/abstract=2356900 or http://dx.doi.org/10.2139/ssrn.2356900

Contact Information

B. Espen Eckbo (Contact Author)
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)
HOME PAGE: http://www.tuck.dartmouth.edu/eckbo
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Tanakorn Makaew
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
Karin S. Thorburn
Norwegian School of Economics ( email )
Helleveien 30
N-5045 Bergen
Norway
+4755959283 (Phone)
HOME PAGE: http://www.nhh.no/cv/thorburn
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
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