Bidder Opportunism, Familiarity, and the M&A Payment Choice

74 Pages Posted: 2 Jun 2022 Last revised: 18 Jan 2024

See all articles by Nils Lohmeier

Nils Lohmeier

University of Münster - Finance Center Münster

Christoph Schneider

University of Münster - Finance Center Münster

Date Written: January 17, 2024

Abstract

A familiarity bias of target shareholders allows bidders to opportunistically choose the M&A payment method. We employ the Stambaugh, Yu and Yuan (2015) mispricing score to identify overvalued bidders, reconfirming that overvaluation is a central driver of the payment choice. Using an instrumental variable based on exogenous price pressure, we provide causal evidence for bidder opportunism. Further analyses show that target shareholders more familiar with the bidder are more likely to accept equity despite particularly adverse market reactions. Our results suggest that behavioral biases of shareholders contribute to the transmission of stock market inefficiencies to the market for corporate control.

Keywords: Mergers and Acquisitions, Stock Payment, Bidder Opportunism, Familiarity Bias, Behavioral Corporate Finance

JEL Classification: G14, G34

Suggested Citation

Lohmeier, Nils and Schneider, Christoph, Bidder Opportunism, Familiarity, and the M&A Payment Choice (January 17, 2024). 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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