Does Hedge Fund Short-Termism Shape Up Merger Payment?
49 Pages Posted: 13 Feb 2018 Last revised: 18 Feb 2018
Date Written: February 16, 2018
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: Suggested Citation