GAINS TO BIDDER FIRMS IN CASH AND SECURITIES TRANSACTIONS

ABSTRACT This paper presents empirical test results of alternative hypotheses regarding differences in returns to shareholders of bidding firms that choose different payment methods (cash or securities). The evidence is consistent with the payment method signaling hypothesis, which asserts that when...

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Bibliographic Details
Published in:The Financial review (Buffalo, N.Y.) N.Y.), 1987-11, Vol.22 (4), p.403-414
Main Authors: Wansley, James W., Lane, William R., Yang, Ho C.
Format: Article
Language:English
Subjects:
Advantages
Bids
Cash payments
Economic theory
Hypotheses
Methods
Payments
Returns
Securities
Studies
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Summary:ABSTRACT This paper presents empirical test results of alternative hypotheses regarding differences in returns to shareholders of bidding firms that choose different payment methods (cash or securities). The evidence is consistent with the payment method signaling hypothesis, which asserts that when management of the bidding firm believes its own stock to be overvalued (undervalued), securities (cash) will be the preferred payment method. The results are not consistent with either the overpayment hypothesis or the present value/hubris hypothesis. The findings also explain the conflicting results reported in prior work on gains to bidding firms.
ISSN:0732-8516
1540-6288
DOI:10.1111/j.1540-6288.1987.tb01263.x