Do Hedge Funds Shape Merger Payment?

42 Pages Posted: 13 Feb 2018 Last revised: 26 Mar 2024

See all articles by Ning Gao

Ning Gao

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

Olga Kolokolova

Lancaster University Management School

Achim Mattes

University of Konstanz

Lijie Yu

The University of Manchester - Alliance Manchester Business School

Date Written: March 30, 2021

Abstract

Using a sample of mergers and acquisitions along with hedge fund holdings from 2000 to 2019, we find that pre-merger hedge fund holdings in target firms increase the proportion of the payment made in cash and decrease the premium, shorten the deal duration, and predict better post-merger performance of the combined firm. The trade-off between cash payment and premium is predominantly pronounced when hedge funds' preference for cash is aligned with bidders' willingness to accommodate it. In cases where bidders have a stronger preference to pay in stock due to its high overvaluation, hedge fund holdings do not increase the fraction of cash, which would have been beneficial for other target investors.

Keywords: Hedge funds, merger payment, premium, short-term investors, long-term shareholders

JEL Classification: G23, G34

Suggested Citation

Gao, Ning and Kolokolova, Olga and Mattes, Achim and Yu, Lijie, Do Hedge Funds Shape Merger Payment? (March 30, 2021). 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)

Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Achim Mattes

University of Konstanz ( email )

Universitaetsstrasse 10
Konstanz, D-78457
Germany

Lijie Yu

The University of Manchester - Alliance Manchester Business School ( email )

199 Cathedral Street
Glasgow, Glasgow G4 0QU
United Kingdom

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