Overvalued Acquirers Still Prefer to Pay with Stock

55 Pages Posted: 2 Jun 2022

See all articles by Nils Lohmeier

Nils Lohmeier

University of Münster - Finance Center Münster

Christoph Schneider

University of Münster - Finance Center Münster

Date Written: May 23, 2022

Abstract

In contrast to recent criticisms, we find that acquirer overvaluation (still) leads to more stock payment in M&As as predicted by the bidder opportunism hypothesis. Employing the Stambaugh, Yu and Yuan (2015) mispricing score to identify bidder misvaluation, we show that overvaluation is one of the main drivers of the payment choice in M&As. Using an instrumental variable approach, we show that exogenous variation in acquirer mispricing significantly affects the share of stock payment, supporting a causal interpretation. Consistent with bidder opportunism, we document a long-run underperformance of overvalued stock acquirers. Finally, we show that targets more familiar with the bidder are more likely to accept overvalued equity and that bidder CEOs with financial expertise are more likely to exploit their firm’s overvaluation by paying in stock.

Keywords: Mergers and Acquisitions, Payment Method, Stock Payment, Acquirer Mispricing

JEL Classification: G34, G14

Suggested Citation

Lohmeier, Nils and Schneider, Christoph, Overvalued Acquirers Still Prefer to Pay with Stock (May 23, 2022). Available at SSRN: https://ssrn.com/abstract=4117228 or http://dx.doi.org/10.2139/ssrn.4117228

Nils Lohmeier (Contact Author)

University of Münster - Finance Center Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Christoph Schneider

University of Münster - Finance Center Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

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