Factors Affecting the Choice of Payment in Mergers and Acquisitions: Evidence from the US and India
This paper investigates the choice of payment method and the dynamics that determine it in the US and India. We study if the method of payment, after controlling for other factors, can explain the abnormal returns around merger announcements. We test different hypotheses with respect to method of financing and explore the interaction of these hypotheses when tested in presence of each other. The choice of payment method in the US is influenced strongly by the industry relatedness of the acquisition and the extent of premium offered and weakly by the future growth opportunities available to an acquirer; whereas, cash flow hypothesis holds ground in case of Indian merger deals.