Decoupling by Clienteles and by Time in the Financial Markets: The Case of Two-Stage Stock-Financed Mergers

16 Pages Posted: 11 Apr 2012 Last revised: 25 Feb 2014

James S. Ang

Florida State University; Florida State University - College of Law

Gonul Colak

Hanken School of Economics

Tai-Wei Zhang

Ming Chuan University

Date Written: January 15, 2014

Abstract

A two-stage stock-financed merger occurs when an acquiring firm first issues shares, and then engages in a cash acquisition shortly afterward. Such deals allow us to test two important hypotheses derived from decoupling: by clienteles via segmentation and by time. The acquirer’s value is maximized by selling shares to investors preferring to hold them, and use the raised cash to pay the target shareholders (the decoupling by clienteles hypothesis). Two-stage deals also provide an option to the acquirers by allowing them to decouple their own shares from the correlated target’s shares by issuing at an earlier date and wait for good acquisition opportunities (the time decoupling hypothesis). We find empirical evidence in support of both hypotheses.

Keywords: decoupling hypothesis; market segmentation; mergers and acquisitions; method of payment; SEO/IPO; use of proceeds

JEL Classification: G32, G34

Suggested Citation

Ang , James S. and Colak, Gonul and Zhang, Tai-Wei, Decoupling by Clienteles and by Time in the Financial Markets: The Case of Two-Stage Stock-Financed Mergers (January 15, 2014). Journal of Corporate Finance, Vol. 25, 2014. Available at SSRN: https://ssrn.com/abstract=2038465 or http://dx.doi.org/10.2139/ssrn.2038465

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Gonul Colak (Contact Author)

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Tai-Wei Zhang

Ming Chuan University ( email )

250 Zhong Shan N. Rd
Sec. 5
Taipei, 111
Taiwan

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