The impact of reduced ownership control on the M&A currency decision : empirical study of the payment method choice in corporate acquisitions

Abstract

This thesis seeks to expand the knowledge on key determinants for the payment method choice in corporate takeovers. Specifically, we examine the importance of ownership control for the financing choice. While most previous studies have taken a static acquirer-focused approach when investigating the importance of corporate control, we also take the target’s ownership characteristics into account to measure the real impact on acquiring shareholders. We expect acquiring shareholders that face serious dilution of influence to have a reluctance for equity-financed acquisitions. We empirically test this using a comprehensive, global sample of 1,909 acquisitions announced between 2008 and 2014. Our sample consists of public companies, that were matched with extensive and detailed pre-deal ownership structures to test for the importance of maintaining corporate control after the acquisition. We propose a segmentation of control - into absolute and relative component parts - and introduce two new variables to measure them in the payment method equation. The variables seek to capture a more dynamic mechanism of control concerns than previously accounted for. Our findings suggest that acquiring shareholders do care about maintaining control, both relative and absolute control, as both our proposed dynamic ownership variables significantly reduce the probability of observing stock-financed acquisitions. These findings prove robust after controlling for numerous deal-, acquirer- and target specific characteristics proven by related studies to affect the payment method choice. We find weaker evidence for the importance of control concerns for the fraction of shares offered in the consideration. The latter finding suggests that bidding shareholders will stay clear of diluting payment methods altogether if they are faced with the threat of losing control, but that maintaining corporate control is a weaker determinant of stock usage at the margin. Previous studies have proven an effect of ownership structures, but our findings suggest that the real dilution of influence acquiring shareholders will experience has an effect on the choice of offering shares at the outset. Further, we find supporting evidence for the importance of information asymmetries, cash availability and acquirer capital structure. On the other hand, we do not find evidence supporting the importance of target financials or the investment opportunities hypothesis in our empirical analysis