Taking Stock or Cashing In? Shareholder Style Preferences, Premiums and the Method of Payment

74 Pages Posted: 15 Mar 2010 Last revised: 21 Mar 2012

See all articles by Timothy R. Burch

Timothy R. Burch

University of Miami - Department of Finance

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Sabatino Silveri

University of Memphis - Fogelman College of Business and Economics

Date Written: March 1, 2012

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 signi…cantly explains the method of payment choice.

Keywords: Mergers and acquisitions, method of payment, institutional ownership

JEL Classification: G34

Suggested Citation

Burch, Timothy R. and Nanda, Vikram K. and Silveri, Sabatino, Taking Stock or Cashing In? Shareholder Style Preferences, Premiums and the Method of Payment (March 1, 2012). Available at SSRN: https://ssrn.com/abstract=1569787 or http://dx.doi.org/10.2139/ssrn.1569787

Timothy R. Burch (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-1509 (Phone)
305-284-4800 (Fax)

HOME PAGE: http://www.bus.miami.edu/~tburch

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Sabatino Silveri

University of Memphis - Fogelman College of Business and Economics ( email )

3675 Central Avenue
Memphis, TN 38152
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
54
Abstract Views
687
rank
448,621
PlumX Metrics