Does short-selling potential influence merger and acquisition payment choice?



Dutordoir, Marie, Strong, Norman C and Sun, Ping ORCID: 0000-0002-5510-8014
(2022) Does short-selling potential influence merger and acquisition payment choice? JOURNAL OF FINANCIAL ECONOMICS, 144 (3). pp. 761-779.

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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.

Item Type: Article
Uncontrolled Keywords: Merger arbitrage, M&A payment choice, Short selling
Divisions: Faculty of Humanities and Social Sciences > School of Management
Depositing User: Symplectic Admin
Date Deposited: 10 May 2022 14:17
Last Modified: 01 Oct 2023 01:30
DOI: 10.1016/j.jfineco.2022.03.002
Related URLs:
URI: https://livrepository.liverpool.ac.uk/id/eprint/3154553