Abstract
Announcements of stock-financed mergers and acquisitions (M&As) may attract short selling of bidder shares by merger arbitrageurs. We hypothesize that bidders with higher short-selling potential include a higher proportion of cash in their M&A payments to mitigate stock price declines resulting from arbitrage short sales. Consistent with this hypothesis, we find that the ex ante net lending supply of bidder shares has a positive impact on the percentage of cash in public target payments. Further tests, including a placebo analysis of public-to-private deals and an analysis of expected price pressure proxies, corroborate the impact of anticipated arbitrage-related price pressure on payment choice.
Original language | English |
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Pages (from-to) | 761-779 |
Number of pages | 19 |
Journal | Journal of Financial Economics |
Volume | 144 |
Issue number | 3 |
Early online date | 11 Apr 2022 |
DOIs | |
Publication status | Published - 1 Jun 2022 |
Keywords
- M&A payment choice
- Merger arbitrage
- Short selling