Journal of Financial Economics Vol. 144 No. 3 2022
Does short-selling potential influence merger and acquisition payment choice?
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.
- DOI
- 10.1016/j.jfineco.2022.03.002
- Volume
- 144
- Issue
- 3
- Pages
- 761-779
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib