Financial Constraints and the Method of Payment in Mergers and Acquisitions

Download or read book Financial Constraints and the Method of Payment in Mergers and Acquisitions written by Abdullah A. Alshwer and published by . This book was released on 2011 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financially constrained bidders are more likely to use stock in acquisitions and are significantly more sensitive to stock valuations and growth opportunities in their method of payment decisions than are unconstrained bidders. Furthermore, in stock-swap transactions, constrained acquirers with high stock valuation offer higher acquisition premiums and capture smaller shares of acquisition gains than low valuation acquirers. The findings indicate that financing frictions affect payment method and are not alleviated in acquisitions. Moreover, the pecking order of capital structure is violated for constrained firms, as they save internal resources to reduce their future financing uncertainty and maintain financial flexibility.