Stock Acquisitions, Investor Recognition, and Announcement Returns

Managerial Finance, Vol. 42, No. 6, pp. 518-535, 2016

Posted: 17 Mar 2016 Last revised: 3 Dec 2019

See all articles by Adam Y.C. Lei

Adam Y.C. Lei

Midwestern State University

Huihua Li

St. Cloud State University

Date Written: 2016

Abstract

We examine how using stock as the method of payment affects a bidder’s investor base and investor recognition, and the bidder announcement return. We hypothesize that relative to a cash acquisition, a stock acquisition would increase the bidder’s investor base and lower Merton’s (1987) shadow cost, which in turn contributes positively to the bidder announcement return. Our results support this hypothesis and suggest that the less established bidders acquiring private targets in particular benefit from the shadow cost reduction. These findings also provide a complementary explanation for the documented positive bidder returns when bidders use stocks to acquire private targets.

Keywords: Mergers and acquisitions, investor recognition, shadow costs

JEL Classification: G14, G34

Suggested Citation

Lei, Adam Y.C. and Li, Huihua, Stock Acquisitions, Investor Recognition, and Announcement Returns (2016). Managerial Finance, Vol. 42, No. 6, pp. 518-535, 2016. Available at SSRN: https://ssrn.com/abstract=2704197

Adam Y.C. Lei (Contact Author)

Midwestern State University ( email )

3410 Taft Blvd
Wichita Falls, TX 76308
United States
(940) 397-4403 (Phone)
(940) 397-4693 (Fax)

HOME PAGE: http://www.adamyclei.com/

Huihua Li

St. Cloud State University ( email )

Saint Cloud, MN 56301
United States
(320) 308-3231 (Phone)
(320) 255-3986 (Fax)

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