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

Research output: Contribution to journalArticlepeer-review

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.

Bibliographical metadata

Original languageEnglish
Pages (from-to)761-779
Number of pages19
JournalJournal of Financial Economics
Volume144
Issue number3
Early online date11 Apr 2022
DOIs
Publication statusPublished - 1 Jun 2022