Acquiring Firms' Stock Returns: Methods of Payment, Changes in Leverage, and Management Ownership

Journal of Economics and Finance, Spring 1994.

Posted: 17 Apr 1998

See all articles by Elias Raad

Elias Raad

Lebanese American University

H.K. Wu

Ithaca College

Abstract

This study examines the effects of the method of payment, change in leverage, and management equity ownership on the acquiring firm's stock returns around the initial announcement date of the merger. Results indicate that stockholders of mergers financed with stocks suffer significant losses. These losses are larger when management ownership is low and smaller in mergers that resulted in acquiring firm leverage decreases. Stockholders of acquiring firms involved in cash mergers gain significant abnormal returns, provided that acquiring firms increase their leverage and that managerial ownership is high. When management equity ownership is low, leverage has no effect on stock returns. When management ownership is high, mergers which resulted in acquiring firm leverage increases have significant positive effects, and those which resulted in acquiring firm leverage decreases have negative but insignificant effects.

JEL Classification: G12, G14, G31, G32

Suggested Citation

Raad, Elias A and Wu, H.K., Acquiring Firms' Stock Returns: Methods of Payment, Changes in Leverage, and Management Ownership. Journal of Economics and Finance, Spring 1994., Available at SSRN: https://ssrn.com/abstract=5350

Elias A Raad (Contact Author)

Lebanese American University ( email )

P.O. Box 36
Chouran-Beirut 1102 2801
Byblos
Lebanon

H.K. Wu

Ithaca College

Ithaca, NY 14850
United States
Not available (Phone)
Not available (Fax)

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