Taking stock or cashing in? Shareholder style preferences, premiums and the method of payment

Timothy R. Burch, Vikram Nanda, Sabatino Silveri

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

We develop and test hypotheses on the impact of target shareholders' investment style preferences on the method of payment and premiums in acquisitions. Stock offers (unlike cash offers) allow target shareholders to defer capital gains taxes. This deferral value, however, depends on target shareholders' willingness to retain acquirer stock. The empirical findings support our hypotheses. Bid premiums in stock offers are negatively and jointly related to target shareholder tax liabilities and to variables proxying for target shareholder willingness to hold acquirer stock. Moreover, the difference between predicted cash and stock premiums due to these factors significantly explains the method of payment choice.

Original languageEnglish (US)
Pages (from-to)558-582
Number of pages25
JournalJournal of Empirical Finance
Volume19
Issue number4
DOIs
StatePublished - Sep 1 2012

Keywords

  • Institutional ownership
  • Mergers and acquisitions
  • Method of payment

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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