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Means of Payment and Timing of Mergers and Acquisitions in a Dynamic Economy



Publishing details

IFA Working Paper

Authors / Editors

Gorbenko A;Malenko A

Publication Year



We study the interplay between bidders’ equilibrium timing of acquisitions, means of payment (cash versus stock), and takeover premiums when bidders are cash-constrained. Because of ability to bid in stock, constraints have no effect on bidders' maximum willingness to pay. However, both own and rivals’ constraints usually make a bidder more reluctant to initiate a bid. The effect of own constraints is opposite for high-growth high-synergy targets. Both fundamentals and cash constraints drive acquisition activity. Positive- but low-synergy targets are either never acquired or acquired after they have grown and using stock, while the opposite is true for high-synergy targets.


Auctions; Financial constraints; Mergers and acquisitions; Real options; Security design


IFA Working Paper

Available on ECCH


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