Do Hedge Funds Shape Merger Payment?
53 Pages Posted: 13 Feb 2018 Last revised: 30 Mar 2021
Date Written: March 30, 2021
Using a sample of mergers & acquisitions and hedge-fund holdings from 1995 to 2009, we find that pre-merger hedge-fund holdings in target firms increase proportion of payment made in cash, but not the premium. In the presence of hedge-fund holdings, higher unexpected cash payment leads to a higher likelihood of deal completion, shortens deal duration, but has no effects on premium. At the same time, target firms held by high-turnover hedge funds are more likely to accept bidders' overvalued equity. Overall, hedge funds holding target firms shape merger payment in ways that do not necessarily benefit target firms' long-term shareholders.
Keywords: Hedge funds, merger payment, short-term investors, long-term shareholders
JEL Classification: G23, G34
Suggested Citation: Suggested Citation