Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions





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    • Amihud is from The Leonard N. Stern School of Business, New York University and Faculty of Management, Tel Aviv University. Lev is from the School of Business Administration, University of California, Berkeley. Travlos is from the School of Management, Boston College. The authors gratefully acknowledge the helpful comments of the editor, René Stulz, and of an anonymous referee, as well as those of George Aragon, Thomas Downs, Robyn McLaughlin, Hamid Mehran, John G. Preston, Elizabeth Strock, Hassan Tehranian, and James Waegelein, and the research assistance of Donovan Figuiera.


We test the proposition that corporate control considerations motivate the means of investment financing—cash (and debt) or stock. Corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock which dilutes their holdings and increases the risk of losing control. Our empirical results support this hypothesis: in corporate acquisitions, the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing. Also, the previously observed negative bidders' abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership.