The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership



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    • New Mexico State University. I would like to thank James Cotter, René Stulz (the editor), Michael Ferri, an anonymous referee, and the participants of the finance workshops at the University of Iowa, New Mexico State University, and Oklahoma State University for helpful comments regarding this article. This article is a substantially revised version of the one presented at the 1994 Financial Management Association meeting in St. Louis, Missouri, and the 1995 meetings of the Allied Social Sciences Association in Washington, D.C.


This article examines the motives underlying the payment method in corporate acquisitions. The findings support the notion that the higher the acquirer's growth opportunities, the more likely the acquirer is to use stock to finance an acquisition. Acquirer managerial ownership is not related to the probability of stock financing over small and large ranges of ownership, but is negatively related over a middle range. In addition, the likelihood of stock financing increases with higher pre-acquisition market and acquiring firm stock returns. It decreases with an acquirer's higher cash availability, higher institutional shareholdings and blockholdings, and in tender offers.