Put Your Money Where Your Mouth is: Treasury Shares as Currency

40 Pages Posted: 16 Nov 2010

See all articles by Nicole Thorne Jenkins

Nicole Thorne Jenkins

University of Kentucky - Von Allmen School of Accountancy, Gatton College of Business and Economics

Alexei V. Ovtchinnikov

HEC Paris - Finance Department

Date Written: November 15, 2010

Abstract

This paper examines the historical question of whether treasury shares and newly issued shares are equivalent by considering their use in stock based M&A transactions. We quantify the differential market response to M&A announcements when bidders have sufficient currency in the form of cash or treasury shares to execute the deal versus bidders with insufficient currency. We confirm prior findings of a nonnegative market reaction to cash mergers of public targets and determine that this finding holds irrespective of the sufficiency of their currency on hand. In addition, we find that the presence of sufficient currency at the date of a stock M&A announcement leads to a significantly more favorable market reaction for public targets. Our results demonstrate that the legal equivalency of treasury and newly issued shares does not extend to these forms of currencies being economically equivalent.

Keywords: Mergers & Acquisitions, financing methods, treasury shares

JEL Classification: G34, G32

Suggested Citation

Jenkins, Nicole Thorne and Ovtchinnikov, Alexei V., Put Your Money Where Your Mouth is: Treasury Shares as Currency (November 15, 2010). Available at SSRN: https://ssrn.com/abstract=1709609 or http://dx.doi.org/10.2139/ssrn.1709609

Nicole Thorne Jenkins (Contact Author)

University of Kentucky - Von Allmen School of Accountancy, Gatton College of Business and Economics ( email )

Lexington, KY 40506
United States

Alexei V. Ovtchinnikov

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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