Working Paper: CEPR ID: DP200
Authors: Julian Franks; Robert Harris; Colin Mayer
Abstract: 2,500 acquisitions in the United Kingdom and United States are used to examine means of payment in acquisitions. There has been a substantial increase in the proportion of acquisitions financed with cash in the United States over the period of the study from 1955 to 1985. Mixed bids are more common in the UK. Bid premia are significantly larger in cash than equity acquisitions and the differences cannot be wholly attributed to the nature of the bid. Cash acquisitions display a better post acquisition performance than equity. These results bear directly on theories of acquisition finance and cast serious doubt on several commonly cited factors.
Keywords: acquisitions; means of payment
JEL Codes: 521
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cash acquisitions (G34) | higher post-acquisition performance (L25) |
| equity acquisitions (G34) | lower post-acquisition performance (L25) |
| cash offers (E41) | higher bid premiums (D44) |
| information asymmetries (D82) | influence on financing method choice (G32) |
| tax implications (H20) | influence on financing method choice (G32) |
| cash acquisitions (G34) | long-term outperformance (P17) |
| equity acquisitions (G34) | abnormal losses in two years (J17) |