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| Type | Bachelor's Thesis |
| Scope | Discipline-based scholarship |
| Title | Payment method and performance in M&A transactions: Evidence from technology firms |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 68 |
| Date | 2016 |
| Abstract Text | The choice of payment method in corporate transactions is a critical decision. The majority of corporate transactions is made with cash or stock. This can include one method exclusively or a combination of both. By choosing a certain method of payment, the acquiring firm sends a strong signal to the stock market participants. In particular, it implicitly reveals the management’s perception about the firm’s current valuation, relative to its fundamental value. Under the paradigm of shareholder value maximization, management selects the most favorable method of payment. As a consequence, we expect an acquiring firm’s management to select stock as the method of payment if they think the firm is overvalued, and cash if they think the firm is undervalued. Assuming that stock market participants have fully adapted to this behavior, we might expect that stock acquirers underperform after the transaction, whereas cash acquirers overperform. Although there is no agreement in principle, existing literature provides strong evidence for the line of argument developed above. |
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