Firm location and the method of payment in mergers and acquisitions

Abstract

This article examines the impact of a bidding firm’s geographical location on the choice of method of payment in mergers and acquisitions. We find that rural bidders are more likely to offer pure stock deals and have lower propensity to use cash as the method of payment compared to their nonrural counterparts. Such findings are possibly attributable to recent empirical evidence which finds that rural firms face higher costs of debt and have limited access to soft information that can help in determining the true value of target firms.