Cash or Stock? Cybersecurity Risk and Payment Method Decisions in M&A

Abstract

This study investigates the impacts of cybersecurity risk on the choice of payment methods in mergers and acquisitions (M&A). We find a negative relationship between acquirer cybersecurity risk and the likelihood of stock payments. This relationship is stronger for acquiring firms that have higher information asymmetry, weaker corporate governance, and lower financial constraints. Our findings are consistent with the view that acquirers choose to pay cash to mitigate potential negative effects of cybersecurity risk on their stock values, while target firms favor cash payments to minimize their exposure to acquirer cybersecurity risks post-acquisition.

Keywords: Cybersecurity risk, Merger and acquisition, Methods of payment