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Review of Finance Vol. 20 No. 1 2016

Do Stock-Financed Acquisitions Destroy Value? New Methods and Evidence

Andrey Golubov1; Dimitris Petmezas2; Nickolaos G. Travlos3

1 1 Cass Business School, City University London, · 2 2 Surrey Business School, University of Surrey, and · 3 3 ALBA Graduate Business School at The American College of Greece

open access

Abstract

We contribute to the debate on whether stock-financed acquisitions destroy value for shareholders. A stock-financed acquisition is a joint takeover/equity-issue event. Using seasoned equity offering announcement returns, we estimate through linear prediction and propensity-score matching the share price drop that stock acquirers experience due to the financing choice. Net of this effect, stock-financed acquisitions are not value destructive, and the method of payment generally has no further explanatory power in the cross-section of acquirer returns. Our evidence is largely inconsistent with the agency costs of overvalued equity hypothesis.

DOI
10.1093/rof/rfv009
Volume
20
Issue
1
Pages
161-200
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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