Does Hedge Fund Short-Termism Shape Up Merger Payment?

49 Pages Posted: 13 Feb 2018 Last revised: 18 Feb 2018

See all articles by Ning Gao

Ning Gao

Manchester Accounting and Finance Group, Alliance Manchester Business School, University of Manchester

Olga Kolokolova

University of Manchester - Manchester Business School

Achim Mattes

University of Konstanz

Date Written: February 16, 2018

Abstract

Using a sample of mergers and acquisitions (M&As) from 1995 to 2009, we find that the proportion of cash payment increases with hedge fund holdings in the target firms. This effect is more pronounced when bidder stocks are less liquid, hedge fund shareholders in the target firms have higher asset turnover, or when hedge funds’ holdings in a target are concentrated in a smaller number of funds. Targets with higher hedge fund holdings are more likely to accept payment in bidders’ overvalued equity. Target announcement returns have no significant relation with hedge fund holdings, however. Our results suggest that hedge fund short-termism leads to the choice of a payment method that may be inefficient for long-term target shareholders.

Keywords: Hedge Funds, Holdings, Short-Termism, Mergers and Acquisitions, Means of Payment

JEL Classification: G23, G34

Suggested Citation

Gao, Ning and Kolokolova, Olga and Mattes, Achim, Does Hedge Fund Short-Termism Shape Up Merger Payment? (February 16, 2018). Available at SSRN: https://ssrn.com/abstract=3113216 or http://dx.doi.org/10.2139/ssrn.3113216

Ning Gao

Manchester Accounting and Finance Group, Alliance Manchester Business School, University of Manchester ( email )

Booth Street East
.
Manchester, M13 9SS
United Kingdom

HOME PAGE: http://www.research.manchester.ac.uk/portal/Ning.Gao.html

Olga Kolokolova (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom
+44-161-306-2081 (Phone)

HOME PAGE: http://www.mbs.ac.uk/research/academicdirectory/profiles/olga.kolokolova.aspx

Achim Mattes

University of Konstanz ( email )

Universitaetsstrasse 10
Konstanz, D-78457
Germany

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