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.
| Original language | English |
|---|---|
| Pages (from-to) | 761 |
| Number of pages | 799 |
| Journal | Journal of Financial Economics |
| Volume | 144 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2022 |
| Externally published | Yes |