Long-term effect of the form of payment in Spanish mergers and acquisitions: an event study

Abstract

This paper explores the methods of payments for companies engaged in mergers or acquisitions, focusing on the Spanish market from 2007 to 2019, specifically on transformative transactions. We use a novel approach to build a sample of homogeneous corporate transactions that allows us to measure the performance for the acquirer one year after the announcement. A descriptive analysis, considering seventeen criteria, and an event study performed using the market model, CAPM and the Fama-French and Carhart four factor model, evaluate the acquirer’s performance post-announcement. Statistically significative results indicate that using shares over cash is preferable for acquirers to achieve sustained success. These findings reveal that, despite theoretical advantages of cash, shares as method of payment may lead to better stock market performance, limited financial profile deterioration, and more favorable long-term prospects for shareholders.

Keywords

• Mergers and acquisitions
• method of payment
• event study
• transformative transaction
• Spain
• David McMillan, University of Stirling, United Kingdom of Great Britain and Northern Ireland