The impact of the method of payment on the excess return in M&As

Abstract

There is extensive literature regarding M&A and how it is a crucial part in companies growth strategy. Furthermore, several authors have found in their research that there exists a relationship between the method of payment and the performance of the M&A and how it will affect the market reaction around the announcement, where most literature claims that cash as a payment method yields a more positive return than if stock is used. A recurring argument for this aspect is the presence of information asymmetry. In this thesis, the method of payments impact on the excess return is tested on the OMX Large Cap Stockholm to see if the prior findings still hold for the Swedish market, as it is to the authors’ knowledge not yet solely tested. Furthermore, as industry related M&As tend to decrease the information asymmetry between the parties in an M&A, this thesis also investigates if the cash payments impact on the excess return is amplified in such M&As. To test both hypotheses in this thesis 357 M&A observations on the Swedish stock exchange OMX Large Cap Stockholm between 2015-2020 are used to statistically examine the impact of method of payment on the excess return. To establish this effect 24 OLS regression models together with 3 T-tests were analysed. The result obtained showed no statistical result between the method of payment and excess return that supported most of the prior research. The same results were obtained when industry related and unrelated M&As were analysed separately.