Investor protection's effect on the method of payment in M&A : an empirical study on how the method of payment in corporate acquisitions is affected by the level of investor protection in the country of the acquiror
Abstract
When shareholders of target companies get paid with stock, they may face an increased risk
of expropriation by becoming minority shareholders in a new company. Thus, when target
shareholders receive bids from companies regulated by countries with weaker investor
protection, their propensity to accept stock as part of considerations will be lower. To test
this intuitive prediction, we look at acquisitions by companies from 38 countries with
varying degrees of investor protection. The results show a positive relationship between investor
protection and the fraction of stock in the method of payment in acquisitions.
Furthermore, cross-border transactions amplify this effect.