Determinants of the Method of Payment in M&A Transactions: Updated Evidence

Abstract

The method of payment choice in merger and acquisition (M&A) transactions has been the subject of much research in the finance literature. Recent contributions have highlighted important changes in the economic environment of acquirers in the U.S., in particular (i) the abolishment of pooling of interest in June 2001, (ii) a persistent policy of low interest rates following the September 11th terrorist attacks and the bursting of the housing and Internet bubbles, and (iii) the sustained increase in the activity of private buyers (e.g., private equity) during the last two decades. These changes motivate us to update the set of stylized facts about the method of payment in M&As. The main takeaway from our analyses is that financial constraints are an important factor motivating acquirers to include stock (at least partially) in the compensation package in M&A transactions in the recent period. Also, ownership and control do not appear to be nearly as important in the U.S. context as the extant literature imagines.