Corporate takeovers, methods of payment and stock returns : Australian evidence

TL;DRAbstract

nnnnn This study examines the role of method of payment in explaining common stock returns to firms involved in a takeover at the announcement of the bid. A theoretical evaluation of the expected relationships between method of payment and offeror and offeree stock returns is developed, and evidence of these relationships is then observed and tested. It was found that significant differences exist in the abnormal returns to bidding firm shareholders involved in cash takeover offers compared to those involved in share exchange takeover offers. No such differential return relationship was found for target firm shareholders across method of payment. These findings appear attributable mainly to information signalling' effects and suggest that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment.

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