The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership

Posted: 22 Aug 1994

See all articles by Kenneth J. Martin

Kenneth J. Martin

New Mexico State University - Department of Finance & Business Law

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Date Written: August 4, 1994

Abstract

This paper provides evidence on the motives underlying the method of payment in corporate acquisitions. The findings support the notion that the higher a firm's growth opportunities, the more likely it is to use stock to finance an acquisition. In addition, the likelihood of stock financing increases with higher pre-acquisition market and acquiring firm stock returns and decreases with cash availability, institutional blockholdings, and in tender offers. Contrary to established theory, however, acquiring firms with higher growth opportunities experience announcement period abnormal stock returns that are significantly negative when stock financing is used regardless of management ownership stakes. Additionally, cash-financed acquisitions are met with significantly negative abnormal returns for acquiring firms with low ownership stakes regardless of the firm's growth opportunities.

JEL Classification: G34

Suggested Citation

Martin, Kenneth J., The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership (August 4, 1994). Available at SSRN: https://ssrn.com/abstract=5469

Kenneth J. Martin (Contact Author)

New Mexico State University - Department of Finance & Business Law ( email )

College of Business Administration & Economics
Las Cruces, NM 88003
United States
505-646-3201 (Phone)
505-646-2820 (Fax)

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