Working Paper Series
Misvaluation and Financial Constraints: Method of Payment and Buyer Identity in Mergers & Acquisitions
Abstract: The paper studies how stock price misvaluation and
financial frictions affect whether an acquisition occurs between or within
industries and whether the acquirer pays in cash or stocks. I set up a
model where stock market misvaluation correlates within industries and
across industries and assume that managers have private information
regarding their own firm and firms similar to it. The model yields
predictions regarding which firm acquires which firm, and the method of
payment used in transactions.
Keywords: Mergers and acquisitions; Investments; Asymmetric information; Stock misvaluation; Financial frictions; (follow links to similar papers)
JEL-Codes: D82; G32; G34; (follow links to similar papers)
32 pages, March 15, 2017
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