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MSc Accounting & finance 2008

MSc Program:

Accounting and Finance

Module Name:

Dissertation

Assignment Tutor:

Mr Leonidas Barbopoulos

Module Code:

ECON 43015

Assignment Description:

Summative Assignment

Student Anonymous Number:

Z0507577

Submission Time and Date:

5 p.m on Friday 5th September 2008

Title: Public versus Private Acquisitions, Information asymmetry and bidder gains

School of Economics, Finance and Business


September 2008

MSc Accounting & finance 2008


Public versus Private Acquisitions, Information Asymmetry and Bidder Gains

Abstract
In this study we examine the announcement share returns of UK acquirers in almost 4,000
domestic acquisitions of public, private and subsidiaries targets over the period 1996 to 2007.
Results indicate that overall acquirers experience significant returns at the announcement of a
takeover proposal irrespectively of the target status and the method of payment. Public
acquisitions are not necessarily non-value increasing in the UK market, although the gains are
dependant on mean of payment. Acquirers of unlisted targets earn a significant average abnormal
return of 1.48% when they use stock, while acquirers of listed targets lose 0.36%. Moreover our
analysis confirms the existence of a size effect in acquisitions returns, with small acquirers to enjoy
higher returns than large acquirers.

Keywords: acquisitions; target status; information asymmetry; bid-ask spread


Word count: 8838 words

By
Z0507577

Finance Dissertation
School of Economics, Finance and Business
September 2008
Public versus Private Acquisitions, Information asymmetry and bidder gains

MSc Accounting & finance 2008


Executive Summary
The primary aim of corporate governance and the objective of a company is to manage its
resources as efficiently as possible in order to maximize its log-run market value. That is
translated into maximizing the value of the shareholders, since the value of debt is
protected contractually, and therefore the goal is to maximize the share price. Corporate
finance offers powerful tools to the managers that help them make decisions of interest for
the firm. As equity prices have been growing rapidly the last years, investors are keen to
see top-line growth, which the companies find difficult to deliver organically. Consequently,
mergers and acquisitions (thereafter M&As) are employed as a quick means to increase
the value of a company and also signal positive messages to the market. (Bradley et al
1983, 1988).

However, it has been well supported that in the announcement period of a takeover, M&As
are not necessarily wealth-increasing. On average, bidders experience positive abnormal
returns in private held acquisitions, while when firms acquire public targets then the
acquirer, on average, will experience losses. These results have been well documented in
the US and UK and characterise these competitive markets.

Takeovers of privately held firms are a prevalent phenomenon in mergers and


acquisitions, as they represent more than 70% of all transactions. However very few
papers, so far, have examined the wealth implication of acquiring firms from unlisted
targets acquisitions. The aim of this project is to make a comparative analysis of public
versus private target in order to examine if acquisitions of private targets create more
value to acquiring firm than acquisitions of public targets. Moreover In this study it is
analysed the mode of payment and acquirer size and other factors that driving
shareholders wealth effect.

Our evidence shows that acquirer experience significant gains in private target takeovers
using stock as method of payment, which contrasts with the negative abnormal return
bidders experience in public acquisitions in stock offers. Further our results confirm the
superiority of small size acquirers against the large one and finally based on our bid ask

MSc Accounting & finance 2008


spread results we document that in private acquisitions shareholders wealth is highly
dependant on the information asymmetry of the bidding firm. The more wide the bid ask
spread the lower the return for the bidding firm.

MSc Accounting & finance 2008


Acknowledgments
I would like to thank my family for the economically and psychological support they
provided me through my entire life. I would like to express my gratitude to my supervisor,
Mr. Leonidas Barbopoulos, whose expertise, understanding, and patience, added
considerably to my graduate experience. I appreciate his vast knowledge and skill in many
areas and his assistance in writing this dissertation.

MSc Accounting & finance 2008


TABLE OF CONTENTS
Abstract ....................................................................................................................................2
Executive Summary ..................................................................................................................3
Acknowledgments ....................................................................................................................5
1. Introduction ..........................................................................................................................7
2. Literature Review .................................................................................................................9
2.1 The impact of Target Status and method of payment ...................................................9
2.2 Acquirers size ...............................................................................................................13
2.2.1 Value Vs Glamour acquirers ..................................................................................14
2.3 Bid- ask spread-Asymmetric Information.....................................................................14
3. Hypothesis development ................................................................................................15
3.1 Controls based on previous research ...........................................................................16
4. Data and Methodology.......................................................................................................17
4.1 Sample ..........................................................................................................................17
4.1.2 Measurement of abnormal returns .......................................................................18
4.2 Sample statistics ...........................................................................................................18
5. Empirical Results................................................................................................................20
5.1 Gains to Acquirers by Payment Method and Target Type ...........................................20
5.2 Information Asymmetry and bidder gains ...................................................................22
5.3 Acquirer size and bidder gains .....................................................................................24
5.4 Value Vs Glamour and bidder gains .............................................................................25
6. Summary and Conclusions .................................................................................................27
7. References ..........................................................................................................................29
8. Figures and Tables ..............................................................................................................33

MSc Accounting & finance 2008


1. Introduction
Corporate restructuring contains various activities including changes in ownership and
control, asset restructure, and/or the capital structure of a company. Accordingly, any
value-maximising firm would engage in activities that will increase firms market value,
earnings, market share and most importantly shareholders wealth. Since 1960s, engaging
in mergers and acquisitions (hereafter M&As) has become an increasingly important mean
of reallocating resources both in the domestic and in the global economy. The pure
motivation under the M&As activity is the creation of value in favour of the firms
shareholders. The majority of the studies1 support almost unanimously that takeovers
create wealth to the targets shareholders but no substantive loss to the shareholders of
bidding firms.
Acquisitions of private firm according to existing literature2 represent the majority of
takeovers. However only few studies had examined if private acquisitions create value on
bidding firms, as a result the available evidence related to private transactions and their
involvement in acquisitions are very scarce. These studies tried to compare the
announcement period and post-acquisition abnormal return of bidders acquiring private
target firms with the abnormal return of listed targets firms. Along the same lines Chang
(1998), Ang and Kohers (2001), and Fuller et al. (2002) based on US market suggest that
that takeovers of privately held targets generate positive abnormal returns irrespective of
the method of payment while acquisitions of listed targets suffer a loss and their gains
depend on the method of payment. Draper and Paudyal suggest that this is due to the
information asymmetry proposed by Myers and Majluf (1984), where private firms with
close ownership have more incentives to examine thoroughly biddings firm stock, thus if
they finally accept it, this will signal to the market that the stock is not overvalued. Thus
information asymmetry can be mitigated in the private firms takeovers. Besides another
factor is that managers-owners of private firms (a small number of shareholders or a
1

Conran and Niden (1992) for the USA, Cheung and Shum (1993 for Hong Kong), Draper and Paudyal
(1999) for UK market
2
Faccio and Masulis (2005) report that approximately 90% of UK (and Irish) acquisitions involve unlisted
target firms; Draper and Paudyal (2006) report approximately 87% of the UK acquisitions involved privately
held targets. However, Moeller et al., (2005) show that approximately 53% of US acquisitions involve
unlisted targets.

MSc Accounting & finance 2008


family) have significant bargaining strength, so they can receive a better price for their
company. Another benefit for private firms acquisition is the limited competition, which
increases the likelihood of underpayment leading to higher returns (Chang, 1998).3

Targets status and method of payment are major factors of gains to acquiring firms around
acquisition announcements, as they convey information about the target. Travlos (1988)
suggest that financing the takeover with different methods of payment, bidders experience
different returns. For public acquisitions its more profitable to use cash as mean of
payment than equities. Among the same line Draper and Paudyal (1999) document that
the method of payment conveys useful information to the market as this reflects managers
views of their company. A stock exchange offer, suggests that at least acquirer firms
share is not undervalued. Chang (1998) based on three hypotheses4 report that stock
exchange creates value for acquirer shareholders in private acquisitions.
The purpose of this study is to examine whether UK listed targets outperform unlisted
targets. Accordingly this project analyzes several issues pertinent to acquisitions involved
listed and unlisted targets, such as: (a) Do bidding firms shareholders enjoy higher
positive announcement period returns when targets are unlisted? (b) What is the role of
the method of payment in acquiring private and public firms? (c) Do the gains from unlisted
target acquisitions vary with the level of information asymmetry? (d)Do value acquirers
outperform the glamour one over the short run period? (e) What is the role of acquirer size
in short-run gains to acquiring firms shareholders?

The remainder of this chapter is organized as follows: Section (2) two reviews the literature
and lays the theoretical ground for the study, section (3) develops the hypotheses I test,
section (4) describes the sample and discusses the methodology used in estimating the
excess returns of bidding firms, section (5) I report the empirical evidence and the
interpretations of the results. Finally, section (6) concludes the study.

A possible reason for the limited competition regarding privately held firms, as proposed by the same author, is the
high information search cost given the sacristy of public available information for this type of firms.
4
monitoring hypothesis, the limited competition hypothesis and the information hypothesis

MSc Accounting & finance 2008

2. Literature Review
This section reviews the literature which is closely related to the main research framework
of this investigation. I mainly focus on earlier studies that investigate the role of the target
status, payment method and relative size in shaping the gains to acquisitions bidding for
private versus private target firms. Moreover, I review the literature based on the existing
theoretical framework of the bid-ask spread while I describe to which extent it captures the
level of firms information asymmetry.

2.1 The impact of Target Status and method of payment


Existing research has shown that the bidders abnormal returns form acquisitions are
heavily dependent on target status and method of payment. The status of the acquiring
firm is one of the most extensively examined determinants of gains to acquiring firms. The
impact that target status has on gains to acquiring firms heavily depends on the method of
payment used in the transaction and therefore it wouldnt be rational to analyse these
under a separate framework. Existing research classifies target firms into private, public
and subsidiary.5

Almost all the studies unanimously have suggested that the acquisitions create positive
gains to the target firms shareholders and no essential loss to the bidding firms
shareholders6. The results of the majority of the studies revealed that public acquisitions
destroy value in the short run.7 Hansen and Lott (1996) based on a sample of 252
acquisitions of public and private companies over the period 1985-1991 in US market
investigate that acquirers gain a 2% higher return when purchasing privately owned
targets than public one. Thus happen because private targets have more freedom in
determining their auction methods as competitive as they prefer, instead of listed targets
5

Existing empirical work that examines gains to acquisitions of subsidiary targets such as Fuller, Netter and
Stegemoller (2002) includes in this portfolio only subsidiaries that are not listed.
6
See for example Conrad and Niden(1992) for the USA, Cheung and Shum (1993) for Hong Kong, Draper
and Paudyal (1999) for the UK. More recent studies such as Goergen and Ronneboog (2004) for European
countries) have come to confirm this finding.
7
See for example Firth (1980), Asquith (1983), Travlos (1987) and Limmack (1991). More recent studies
such as Andrade, Mitchell and Stafford (2001), Fuller, Netter and Stegemoller (2002), Moeller, Schlingemann
and Stulz (2004) and Faccio, McConnell and Stolin (2006) have come to confirm this finding.

MSc Accounting & finance 2008


which are restricted because of legal requirements. Moreover perfectly diversified
shareholders are uninterested for the way the gains are divided in the case of public
acquisitions as they will have shares in both firms, something that will not be happened in
the case of private acquisitions.
Chang (1998) examines acquirer firms stock reaction using a sample of 285 acquisitions
of private targets between 1981 and 1992 in US market. Their evidence shows zero
(negative) abnormal returns for acquisitions of private (public) targets paid for with cash
and positive abnormal returns for acquisitions of unlisted firms in stock offers. The
explanation he offers is that the acquisitions of unlisted firms through stock exchange tend
to create large block holders. The existence of such large block holders give benefits from
their increased monitoring of the activities of the acquiring firm. Moreover their results are
according to Hertzel and Smith (1993) that if well informed investors take large position in
a firm this will transfer well information about the firm (monitoring hypothesis). Like Hansen
and Lott (1996) and Chang (1998) Fuller, Netter, and Stegemoller (2002) with a more
extensive sample of 3,135 acquisitions of private and public targets between 1990 and
2000 for US market document that acquirers of public targets lose and acquirers of private
target firms gain. However their results show that bidder gain, in the case of privately held
targets, even for cash payments. Furthermore their evidence shows that when the target
firm is larger and the mode of payment is stock the gain is greater. The explanation they
give is that in an illiquid market (private, subsidiary firms),where the information availability
for the targets is poor and the competition weak, bidders do not pay as high a price as in a
liquid market (private firm),where information is available and buyers can compete for
control. Thus there is a discount for illiquidity which they present results in a higher return
to acquirers (liquidity hypothesis).

Subsequent studies such as Ang and Kohers (2001) and Moeller et al. (2004) posit
significant positive abnormal returns in cash stock and mix offers for acquirers of privately
held targets for the US market with share bidders gaining the largest abnormal return. On
the other hand the abnormal returns for acquirers of listed targets depend on the mean of
payment with those of paying with shares to suffer a loss. Ang and Kohers (2001) argue
that buyers have to pay higher premiums for private targets than for publicly targets. This
is consistent with the strong bargaining power and timing option of privately held firms. In

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unlisted targets there is lack of agency problem due to very concentrated ownership form,
which gives them the opportunity to decide how, when and to whom they would prefer to
sell (bargaining power hypothesis).

Da Silva Rosa, Limmack, Supriadi, and Woodliff (2001) for Australia, respectively confirm
that acquirers of privately held targets achieve a significant positive excess return, a result
which is

in contrast with the insignificant findings based on bids for public targets.

Contrary to Chang (1998) in Australia market most of acquisitions of private targets are
financed by cash and this create higher positive returns than when the mean of payment is
stock. They comment that these results are accordant with the explanation that the lower
competition for private targets in Australian market permits acquires to cover more of the
economic rent from acquisitions by offering cash than stock.

Draper and Paudyal (2006) for the UK market using a very large sample of 8597
acquisitions of listed and privately held targets between 1981 and 2001 document that
bidder of listed targets do not recognise any substantial loss during the period surrounding
of the announcement. In contrast acquirers of privately held targets experience significant
positive returns. More specific bidders for private firms using stock as method of payment
earn the largest abnormal return while bidders for listed firms paying in shares lose.
Furthermore acquirers of public targets paying in cash do not experience any substantial
loss, compared with bidders for private targets who earn significant excess returns for
cash deals. Their results are consistent with the monitoring and liquidity hypotheses which
are analysed above and also are accordant to asymmetric information hypothesis of Myers
and Majluf (1984). In a word of asymmetric information the method of payment signals
valuable information to the market. Managers of the private own targets have incentives to
asses thoroughly the value of the bidding firm, especially in the case of stock payment.
This close examination decreases information asymmetry. Subsequent if they finally
accept to hold a large block of shares in a merged firm, this will convey favorable
information for the bidding firms stock in the market.
In a more recent study relative to information asymmetry, Draper and Paudyal (2008)
argue that undervalued bidders with high information asymmetry experience higher
earnings than other bidders. This happens because managers of undervalued firms with

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high information asymmetry between the company and investors announce takeover bid
with the aim to be revalued from investors and analyst and through this to increase their
stock price.

A more general hypothesis offered by Draper and Paudyal (2006) in order to explain why
bidders for private targets earn more than bidders for listed targets is the managerial
motive hypothesis. They comment that when managers are willingness to acquire a small
and unknown private firm this means that they are motivated more from potential
synergies from the acquisition rather than from their private benefits. Moreover they argue
that small private firms can be integrated easier from the acquiring firm rather than large
listed firm.

Many researches find that the decision about method of payment is consistent with large
differences in outcomes. Travlos (1987) examine to which extent different methods of
payment results in different returns. The author document when acquirers use stock to
acquire a private company, the announcement returns are significantly positive on
average, whereas exactly the opposite applies in case of publicly traded targets. Besides
the acquirer announcement returns are affected by the method of payment only when the
target is private and difficult to value, as the use of stock-swap can mitigate the information
asymmetry about the private firm (Hansen, 1987). Furthermore he emphasizes that except
of investors interpretation equity and cash offers have different tax implications. Cash
offers generates in general tax obligations for the firm stockholders instead of stock
exchange offers which are tax-free until the stock is sold. Consequently if a firm makes
cash offer should also pay a higher premium to offset the tax obligation of the selling
stockholders.

It becomes obvious from the discussion above that acquirers buying unlisted targets will
outperform those buying listed targets, irrespective of the method of payment used in the
transaction in most cases.

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2.2 Acquirers size
The firm size (market capitalisation) of the target has been recently recognised as a major
determinant of short-run gains to acquiring firms shareholders. Moeller, Schlingemann
and Stulz (2004), using a comprehensive sample of 12,023 acquisitions from 1980 to 2001
in US market, shown that small firms8 outperform large firms by 2.24% percentage point.
More specific irrespective of the method of payment large firms experience significant
negative abnormal returns when they acquire public firms, while even in the case of
acquisitions of listed targets, small acquires experience significant gains (0.92%). Authors
offered several explanations for this size effect as determinant of the difference in
shareholders wealth between small acquirers and large acquirers. First small firms and
large firms have different characteristics, according to Lang et al. (1991) and Servaes
(1991) acquirers with high q-ratio experience higher gains for public firms acquisitions and
Maloney et al. (1993) show that high leverage firms recognize higher returns. Second Roll
(1986) mentioned that managers who suffer of hubris overpay, and Demsetz and Lehn
(1985) observe that large firms managers suffer more form hubris than small firms
managers, as large firms have more available resources to make acquisitions and
generally investments and are covered more by media. Third large firms are more possible
to be overvalued and to have exhausted its growth opportunities thus, conveying negative
signals about the acquirers price. Finally, arbitrageurs are likely to use their resources in
small firms acquirers and according to Mitchell et al. (2004), in the case of stock payment
in acquisitions; there is a downward price pressure on the stock price of the bidder caused
by arbitrageurs activities. (The arbitrageur hypothesis).

A more recent study from Rhodes Kropf and Robinson (2008) offers another possible
explanation of why small acquirers outperform large acquirers. The conventional wisdom
suggests that high asset value firms buy low asset value firms; while they show that a
more appropriate interpretation is that firms with similar asset valuations purchase one
another. As a result it is more likely that large firms acquire large, public firms. Given that it
is more profitable for acquirers to acquire private, as opposed to public targets then this
can be a reason why small acquirers gain more.
8

The authors classify small acquirers as firms whose capitalization falls below the 25th percentile of NYSE
firms at the year of the acquisition announcement. All remaining bidders are in the large subset.

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2.2.1 Value Vs Glamour acquirers
Glamour firms are firms which have high stock market prices relative to an accountingbased measure of firm worth (e.g., high Market/book ratios). In contrast, value firms are
those which have low stock market prices. Rau and Vermaelen (1998) for the US market,
using as proxies firm size and MTBV, they document that irrespective from the mean of
payment value acquirers enjoy significantly lower announcement period returns (short run
period) but much higher post acquisitions returns (long run period) over three years than
glamour acquirers. Further they notice that glamour acquirers are prone to use their own
stock in order to finance the acquisition. Along the same lines Sudarsanam and Mahate
(2003), for the UK market confirm that value acquirers outperform the glamours one in the
long run performance. They support also the argument that glamour acquirers exhibit a
tendency to finance the merger using stock in contrast with value acquirers who are more
likely to use cash since they believe that their stock is undervalued. 9 However, they also
suggest that value acquirers outperform the glamour one even in the short run period.

2.3 Bid- ask spread-Asymmetric Information


Bid ask spread is the amount by which the ask price quoted by a dealer exceeds the bid
price by a dealer at a point in time. This is essentially the difference in price between the
highest price that a buyer is willing to pay for an asset and the lowest price for which a
seller is willing to sell it. Current literature implies that the bid ask spread has three
components: the information asymmetry cost, the processing orders cost and the
inventory cost. Bagehot (1971) was the first among others who mentioned that dealers
lose when they transact with traders with superior information. Further analysis of the role
of the asymmetric information is given by Copeland and Galai (1983), Glosten and
Milgrom (1985), and Easley and O'Hara (1987). Stoll (1989)10 document that the bid ask
may be decomposed into the following components : 43% information asymmetry cost,
47% order processing cost and 10% inventory holding cost and the components seem to
be a stable proportion of the quoted spread. He succeeded to decompose the

Sudarsanam and Manhate, (2003)


Using data on the transaction prices and price quotations for NASDAQ/NMS stocks

10

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components of bid ask spread by using a covariance model to calculate the realised
spread attributable to order processing and inventory holding cost and then he estimate
the information asymmetry cost by subtracting one from the realised spread. Menyah and
Paudyal (2000) using Stolls (1989) model verify that London Stock Exchange (LSE)
spreads include all the three cost components identified by the literature. Their results
suggest that on average 30% of the spread is the order processing cost, 23% is inventory
cost and 47% is the asymmetric information cost.
.The asymmetric information cost component varies inversely with the size of the realised
spread. This suggests that during trading periods, market makers earn smaller spreads as
a result of losses to informed traders.

Venkatesh and Chiang (1986) posit that the dealer should widen the bid-ask spread when
he or she suspects that the information asymmetry has increased. Bid ask spreads are
changed in a similar way to reflect the information conveyed by the transactions. In the
light of the above, in this paper we will use bid ask spreads in order to estimate the
existence of information asymmetry and its influence on bidder gains and on the method of
payment.

3. Hypothesis development
Based on the above analysis we will develop three hypotheses that will be tested:

a) The asymmetric information hypothesis

Myers and Majluf (1984) propose a theoretical framework in which when acquirers employ
common equity to buy listed firms, they signal to market participants that their stock is
overvalued (information asymmetry). Existing evidence document that in public
acquisitions, acquiring firms returns suffer more when the method of payment is stock
than cash11. On the other hand when firms use stock to acquire private firms with, join
positive returns as this conveys favorable information to the market about the bidding firm.
This happens because closely ownership firms are highly motivated to assess the bidding
11

See for instance Chang (1998), Draper and Paudyal (1999)

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firms stock closely and they accept stock only when that is at least, not overvalued, as at
the end they will hold a substantial part of the bidding firms stock. This suggests the
following testable proposition: bidders for private targets paying with shares receive a
positive return while bidders for listed targets paying with shares suffer a loss.

b) Bid ask Spread


Stolls (1989) and Menyah and Paudyal (2000) suggest that on average almost 50% of the
bid ask spread is the asymmetric information cost. Further Venkatesh and Chiang (1986)
suggest that when the information asymmetry increase the bid ask spread should widen.
Moreover Chang (1998) document that in private acquisitions financed by stock acquirers
enjoy a positive abnormal return, which contrasts the negative abnormal return found for
bidders acquiring a listed target. This is due to monitoring activities by target shareholders
and, to an extent reduced information asymmetries. This suggests the following
proposition: Bidders subject to low Information Asymmetry (i.e. low bid ask spread) using
common equity to finance acquisitions enjoy higher returns than bidders subject to high
Information Asymmetry (i.e. high bid ask spread).

3.1 Controls based on previous research


c) Value Vs Glamour

A number of studies have find evidence which support that over the announcement period,
glamour bidders experience higher return than value one. However, Sudarsanam and
Mahate (2003) for the UK market observe that value acquirers outperform the glamour one
even in the short run period. Further major of the studies12 used MTBV as a proxy as they
have recognized its ability to capture and explain stock return. This suggests the following
proposition: Low MTBV bidders gain higher returns in comparison to those with high
MTBV.

12

Fama and French, (1992), (1996) ; Pontiff and Schall (1998); Rau and Vermalen (1998), Lakomishek and
others (1994)

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.
d) Acquirers size
The firm size (market capitalisation) of the target has been recently recognised as a major
determinant of short-run gains to acquiring firms shareholders. Most of the studies agree
that irrespective of the method of payment small firms outperform large firms when they
acquire firms, due to the reasons we analyzed in the literature review. This suggests the
following proposition: Small acquirers outperform large acquirers in the sort run period.

4. Data and Methodology


4.1 Sample
The sample of acquisitions is from Thomson Financial SDC global mergers and
acquisitions database. The sample is included only completed, domestic transactions
those take place during the period 1996-2007 and recorded by the Security Data
Corporation (SDC). The acquirer is always listed while the target is public, private or
subsidiary. All subsidiaries in the sample are not listed. The method of payment could be
cash when bidders are paid only by cash, stock when their bid is based 100% on stock
and mix when target shareholders are paid by a mixture of cash and stock. The choice of
sample period is guided by the comprehensiveness of records in SDC and available at the
time of data collection. SDC records 21,714 cases of M&A deals involving UK bidders
within the sample period. For a deal to remain in the sample it should meet several criteria:
First of all acquirer should be a UK company traded in the London Stock Exchange.
Second the deal value and the market value of the acquirer a month prior to the
announcement of the deal should be at least 1 million13 in order to eliminate outliers.
Third the acquirer is always listed while the target is public, private or subsidiary. All
subsidiaries in the sample are not listed. Further to avoid the implications of multiple bids
multiple deals announced within 5 days (t-2, t+2) surrounding a bid are excluded. Finally I
require that all successive transactions have payment method data available and that all
acquirers have share price data available from Thomson Financial Datastream. Deals with
no return to index (RI), market capitalization (MV), and market-to-book value (MTBV) data
13

We follow Fuller, Netter, and Stegemoller (2002), Moeller, Schlingemann, and Stulz (2004), and Moeller
and Schlingemann (2005) and employ a one million pounds cut-off to avoid results being driven by very
small deals.

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available from Thomson Financial DataStream database and deals with negative MTBV,
and negative or MV (as in Lyon et al., 1999) are excluded.

We finally obtain a sample of 3,924 UK acquisitions deals survive the criteria. This sample
comprises only domestic bids.

4.1.2 Measurement of abnormal returns


We estimate the announcement period abnormal return with a modified market model
(equation 1) as in many recent studies (see, for example, Fuller et al., 2002, Faccio et al.,
2006) that encounter similar problems.

ARi Ri Rm (1)
Where ARi ,t is the excess return of bidder i on day t ; Ri ,t is the return of bidder i on day t
measured as the percentage change in return index (inclusive of dividends) of bidder i ;
Rm ,t is the market return defined as the percentage change in FT-All Share index (value

weighted) on day t . The announcement period cumulative excess returns (CARi) is the
sum of the abnormal returns of 5 days (-2 to +2) surrounding the day of the announcement
of the bid as defined in equation (2). Ri and Rm are defined in equation (1).
CARi

t 2

R R (2)

t 2

m t

4.2 Sample statistics


A description of the sample and of selected features of the transactions is provided In
Table 1. It presents acquisition activity and statistics per year using for our final sample
that consists of 3,924 transactions. The total value paid for targets in domestic
transactions during the sample period is nearly 400 million pounds. The number of the
acquisitions is very high during the period 1998-2000, where was the period of the fifth
merger wave. It then decreases sharply and reaches its lowest level on 2003. Finally on

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2006 where we have the sixth merger wave the number of sample cases increases again
on 304 activities. The average value of a transaction is 105 million while the market value
of acquirers is 708 million suggesting that the average size of bidders is over 11 times
larger than the size of the transaction.

Moving on, Table-2 it can be observed that the most common target is the private one
(52%), followed by the subsidiaries (26%) and the public (22%). This is consistent with
current studies14 which notice that in the most of takeovers privately held firms are the
targets. However, from 2002 onwards the takeover activity has directed towards different
preferences with most of the bidders to be prepared to acquire more listed than unlisted
target firms. In fact, within 2006 and 2007 takeovers of public targets represent more than
36% of all acquisitions and subsidiaries only 14%. On the other hand, within 2001
acquisitions of public targets represent no more than 13% of all transactions while
subsidiaries about 35%. The main explanation why public acquisitions are become more
attractive year to year because is because from year 2002 until now they have started
creating value to the bidders shareholders with a significant average abnormal return of
up to 8%. In contrast with public and subsidiaries targets firms the percentage of the
private acquisitions is almost constant around 50%. Figure 2 confirms the above findings.
From table 3 we can notice that the bidders for listed targets are almost three times larger
than the bidders for private targets while the value of the public acquisition is thirty times
greater than for private acquisitions.

Further by examining the method of payment (Table-4) can be noticed that acquirers pay
for 45.61% of the acquisitions with pure cash, with a mixture of cash and stock for the
44.52% of the acquisitions, and finally bidders pay on the 9.87% on the cases with stock.
The above results come in contrast to those found in other studies examine the UK
market15.where mixed is the most common method of payment followed by cash and
stock. According to target status, private acquisitions are more common to use as mean
of payment cash with 54.98%, then equity with 26.21% and lastly mix payment with
18.81%. On the other hand bidders for private targets prefer to use mixed payment
(62.69%), then cash with 31.13% and only 6.18% of the acquisitions is financed by stock.
14
15

See for instance Draper and Paudyal (2006)


Sudarsanam and Salami (2001)

19

MSc Accounting & finance 2008


Finally when bidders acquire subsidiaries Cash and stock offers represent the 63.16% and
6.57% of the total sample respectively, while the remaining 30.27% is the mix of cash and
stock deals. The above results (see figures 3, 4 and 5) clearly indicate that despite in
private and subsidiaries acquisitions bidders use diachronically the different methods of
payment in the same proportion, in public acquisitions from 2001 it is noticed an increase
in cash offers. As a result during the period 1996-2007 in the UK market the predominant
method of payment for the acquisitions is cash. Another possible explanation is that in UK
bidders who want to acquire more than 30% of a target are obliged to have a mandatory
bid offer with cash.

5. Empirical Results
5.1 Gains to Acquirers by Payment Method and Target Type
The main aim of this study is to examine bidder gains involved in private and public
acquisitions across the UK market during the period 1996 - 2007. In order to examine our
first hypothesis we split our complete sample into three; public (833) private (2056) and
subsidiaries (1035) targets and then we split it again into three subgroups based on the
method of payment (cash, stock, mix). Table 5 presents cumulative abnormal returns to
acquirers by target status and payment method, during the 5 days surrounding the
announcement. Results are reported for all, public and private deals and individually for
all-cash (Cash), all-stock (Stock) deals and mixed deals. Means are reported first, second
the t-test and third the sample size. The table also reports differentials between public and
private acquisitions in each case using one sample t-test for means. A general remark at
first sight is that overall bidders join significant positive returns (Table-5, all) 2.33%,
irrespective of the method of payment. This is in contrast with the previous literature that
the announcement of a takeover generates no abnormal returns to the shareholders of
bidding firms. Companies that make bids for listed firms experience significant gains of
4.61%, while acquirers of private firms join significant positive abnormal return up to
1.84%. The difference between public and private abnormal return is 2.78% and significant

20

MSc Accounting & finance 2008


at the 1% level (t= 6.46). Our results are not consistent with current literature16 and cannot
support the bargaining power hypothesis, analyzed in the literature review, offered by Ang
and Cohers (2001). Further analysis shows that our results are consistent with the
literature until 2001. This maybe due to the market timing we had an increase of public
acquisitions with cash offers, and public acquisitions created value to bidders
shareholders.

The evidence from table 5 reveals significant differences in bidders gains between cash
and stock offers. As shown in this table, for public acquisitions cash offers are associated
with high significant returns up to 7.63%, while stock offers are associated with negative
abnormal returns (-0.36%) with significance at 10% level. This confirms Travlos (1988)
finding that on the cash financing acquirers earn at the announcement period while on the
stock financing experience significant losses. On the other hand in private acquisitions
when the method of payment is stock bidders returns are higher (1.56%) than when the
method of payment is cash (1.48%). The difference between private and public firm in
stock offers is 1.86%. This is consistent with Chang (1998) that the acquisitions of unlisted
firms through stock exchange tend to create large block holders. The existence of such
large block holders give benefits from their increased monitoring of the activities of the
acquiring firm. This evidence is consistent with the argument that if well informed investors
take large position in a firm this will transfer well information about the firm (monitoring
hypothesis). Accordingly the evidence that public acquisitions lose in stock offers can lend
support to the asymmetric information hypothesis developed by Myers and Majluf (1984)
that issuing equity to the public conveys bad news to the market for the acquiring firms
stock. Moreover from table 5 we can report that private firms takeovers create wealth to
the bidders irrespective of methods of payment. This reconfirms the prediction on
managerial motive hypothesis and the liquidity hypothesis analysed in the literature review.
Further it can be observed that mixed offers create always significant excess returns for
the acquirers and irrespective of target status. An explanation to why mixed payments are
higher than pure cash or stock is suggested by Eckbo, Espen, Giammarino, and Heinkel,
(1990) were the authors explain that these offers are consisted of both synergy revaluation
16

Chang (1998), Drapper and Paudyal (2006), Conn, Cosh and others document that bidder returns in
private acquisition will be higher than in public deals.

21

MSc Accounting & finance 2008


benefits (the markets anticipation about the gains of the synergy) and the signalling effect
(bidders information conveyed by the method of payment).
The estimates17 (Table 5) confirm our first hypothesis that bidders for private targets
paying with shares receive a positive return while bidders for listed targets paying with
shares suffer a loss.

5.2 Information Asymmetry and bidder gains


By trying to test our second hypothesis and whether they hold or not, we come across
table-9. In order to measure information asymmetry we use the bid ask spread as poxy
based on Stolls (1989) and Menyah findings that on average almost 50% of the bid ask
spread is the asymmetric information cost. The construction of table-9 is the union of five
panels. Initially we split the sample into three groups according to the size of bid ask
spread (high, medium, low). Further working among the same lines, the second part of
table-8 provides information based on the target status (public, private, and subsidiary)
and the mean of payment (cash, stock, mix).

Panel A examine the overall performance of bidders in different situation of information


asymmetry. In general bidders earn significant excess returns at the announcement of a
takeover proposal irrespectively of the information asymmetry. Only in the case of stock
offer in a high information asymmetry environment, bidders detect a loss. However this
result cannot considered as reliable since it is not statistically significant. From table-9 we
can suggest that when bid ask spread is low, bidders earn higher significant returns up to
1.18% than when bid ask spread is high, irrespectively of the method of payment. In stock
offers is reported the higher difference in abnormal returns (2.90) for bidder shareholders
between low and high bid ask spread. The difference is significant in 10%. This is
consistent with the current literature that in high information asymmetry, where managers
have superior information, an announcement of acquisition with stock offer conveys bad
news to the market for the biddings form stock. Hence, the market reaction to the takeover
proposal will be negative. Findings for mix and cash offers are confirming the previous
17

If the target is listed the dummy variable takes the value 1, if it is private 2 and if it is subsidiary 3.

22

MSc Accounting & finance 2008


results but with lower difference between high and low bid ask spread (-0.87% and -0.90%
respectively). The results of Table 9, panel A confirm our second hypothesis that bidders
subject to low Information Asymmetry (i.e. low bid ask spread) using common equity to
finance acquisitions enjoy higher returns than bidders subject to high Information
Asymmetry (i.e. high bid ask spread).

The results illustrated in Panel B (public acquisitions) reveal that bidders earn higher
significant abnormal returns (2.34 %) when the bid ask spread is low irrespectively of the
method of payment. Further it can be observed that in cash offers both in low and high bid
ask spread acquirers detect significant abnormal return. In addition in low information
asymmetry acquirers of private targets can have an insignificant gain even if they use
stock as method of payment. Another interesting result is that in case of high information
asymmetry bidders use more often their stock as method of payment than in case of low
information asymmetry. This could be a signal that their stock is overvalued, as buyers
tend to offer stock when they believe that their shares are overvalued especial in case of
high information asymmetry, where managers of the company know something that the
market does not (Ang and Cheng, 2003).

Panel C presents the abnormal returns of private firms. Acquirers earn almost the same
significant abnormal returns in the case of low and high information asymmetry when they
offer cash. When the method of payment is stock the differentials between high and low
bid ask spread are insignificant using t-test, maybe due to the small size of the sample.
However in contrast with public targets, bidders acquiring private firms with stock in the
case of low information asymmetry gain 2.99% with 10% significance using t-test. This
happens as private firms with very close ownership have more incentives to examine
bidders stock, as at the end they will hold a large block of shares in a merged firm.
Subsequent if they finally accept the offer this will convey favorable information for the
bidding firms stock in the market.

Moving on to panel D which cooperates with subsidiaries we can report that in the case of
stock payment we have the biggest significant (at 5%) difference (6.53%) between low and
high bid ask spread. Finally panel E reports differentials between public and private
acquisitions in each case using one sample t-test for mean. A general remark at first sight

23

MSc Accounting & finance 2008


is that bidders enjoy higher abnormal return in low bid ask spread than in high one,
irrespective of the method of payment and of the target status. Moreover it can be
observed that for both bid ask spread size the overall abnormal returns to bidders of
private targets paying with stock is higher than the excess returns to acquirers of listed
targets. However in cash offers acquisitions of public firms offer higher returns to the
shareholders of acquiring firm than acquisitions of private firms. These results offer a
support to the monitoring hypothesis and the bargaining power hypothesis but they reject
the managerial motive hypothesis.

5.3 Acquirer size and bidder gains


Previous literature has pointed to the role of acquirer size in determining gains to
acquirers. These are discussed in the literature section. Our aim is to investigate the
distinctive roles of acquirers size and acquirers market-to-book value (MTBV).
In order to examine whether low acquirers outperform high acquirers we will take in
consideration the market value of the acquirers one month prior to the bid announcement.
We divide our sample of 3924 acquirers into three equally sized portfolios high, medium
and low. From these three portfolios will be used only the two of them; the high MV and
the low MV. We discuss the relation between acquirer MV, target status and method of
payment. For each of the portfolios, we report abnormal returns for the period: from day -2
to day +2, where the bid announcement day is day 0. This period is referred as the
announcement period.
Table 7 reports short-run abnormal returns to bidders per acquirer characteristics (MV)
subsets. Starting with panel A which contains the entire portfolio can be observed that
overall, irrespective of the target status and method of payment, low acquirers outperform
high with a significant at 1% difference up to 1.03%. This is related to the existing
literature18. Cash offer support the same results with a significant difference between high
and low acquirers of -2.66%. In contrast with cash offers when acquirers use stock as

18

See for instance Moeller et al. (2004) report that small acquirers outperform large by a statistically
significant margin of 2.3%, Rhodes, Kropf and Robinson (2008) confirm the previous result.

24

MSc Accounting & finance 2008


method of payment then difference between large and small acquirers is positive 0.76 %.
However this result cannot provide us with useful evidence as it is not statistical significant.
Moving on to panel B and to public targets can be seen that findings are similar to those of
entire portfolio.

At the bid announcement period (-2 to +2 days), low MV acquirers

experience higher abnormal returns than high MV acquirers. In the case of cash payment
High MV acquirers experience significant abnormal returns of 4.56% whereas acquirers of
low MV earn 9.23%. For stock and mix method of payment the reported differences are
not significant. Further panel C engages with private firms. Our findings posit the
superiority of small acquirers than the large one with a significant difference of 1.03%. The
differential is statistically significant at the 5% level. For all the three methods of payment
we find that low MV acquirers enjoy higher abnormal returns than high MV acquirers. Low
MV acquirers experience abnormal returns ranging from 1.17% to 2.23% while abnormal
returns range from 0.16% to 1.12% for high MV acquirers. Moreover panel D cooperates
with subsidiaries targets. In this case for each method of payment individually the reported
differences are not significant. Finally in panel E we can observe the differentials between
public and private firms. The results document that the overall abnormal return to bidders
of listed targets remain higher than the abnormal return of unlisted targets for both relative
size groups. However in mix and stock offers the excess return of private firms
acquisitions is higher than those of public firms acquisitions but the results are
insignificant. Thus we can infer, after considering the relative size of the deal, that our
findings offer partial support to the validity of our first hypothesis.

Summing up, the general overview that is extracted from the use of MV as benchmark is
that overall our results are fairly consistent with previous US and UK studies that report
higher significant excess return from the low MV acquirers than high MV acquirers at the
time of the bid announcement. Consequently we can accept our third hypothesis.

5.4 Value Vs Glamour and bidder gains


By following the same methodology that was applied in table 7, we proceed on by using
this time the MTBV as benchmark for the firm size. In table 8 we present the abnormal
returns for acquirers partitioned on the basis of their market to book value, target status
and finally method of payment. In panel A, at bid announcement (-2 to +2 days) we report

25

MSc Accounting & finance 2008


that high MTBV, glamour acquirers experience abnormal returns in the range of 0.17% to
1.94%, while the returns are 1.39% to 3.90% for value acquirers. The differentials in mean
abnormal return between the two groups for all, cash, stock and mix method of payment
are -0.83%, -1.29% , -1.22%, -0.27 respectively. However only the differential of all and
cash method of payment is significant at 1% level. Based on panel A we can infer that low
MTBV acquirers outperform glamour acquirers. This is contrast with the results of Rau and
Vermalen (1998) that market favour acquirers with high MTBV at the time of the bid
announcement. Moving on, we are transferred to panel b which engages public targets.
Glamour bidders in private acquisitions earn statistically significant abnormal returns of
3.53% while value bidders earn 4.62%. In cash offers the difference between value and
growth bidders is higher with a differential of 2.47% at 5% significance level. In the case of
stock and mix payment the reported differences are not significant. Further, from panel c
which cooperates with private targets, it is observed that high MTBV bidders acquirers
experience abnormal returns in the range 1.04% of to 2.06%, while the returns are 2.03%
to 2.6% for value acquirers. The differentials in mean abnormal return between the two
groups for all, cash, stock and mix method of payment are -0.64%, -0.99%, -0.50%,
-0.54% respectively. However only the differential of stock offer is significant at 10% level.
Moreover in panel D and subsidiaries the results provide us more evidence that value
acquirers outperform growth acquirers. In panel E we can observe the differentials
between public and private firms. The findings confirm that bidders financing by cash
detect higher abnormal returns in public acquisitions than in private with a significant level
of 1%. In contrast when the method of payment is stock, acquirers of public targets enjoy
lower insignificant returns than acquirers of private targets.
Finally from figures 7 and 8 we can observe that both value and glamour acquirers prefer
to use cash as method of payment than stock and mix. This is in contrast with the results
of Rau and Vermaelen (1998) for the US market, and Sudarsanam and Mahate (2003), for
the UK market that glamour acquirers exhibit a tendency to finance the merger using
stock in contrast with value acquirers who are more likely to use cash.
As a conclusion, overall based on MTBV as a benchmark for glamour/value we can
support the underperformance of glamour acquirers (our Hypothesis, H4). Our results are

26

MSc Accounting & finance 2008


related with previous studies19 which have noticed that low market to book value (value)
firms outperform (glamour) high market to book firms.

6. Summary and Conclusions


The aim of this study was by using a large data set of 3924 domestic acquisitions for the
UK market over the period 1996 to 2007, to examine bidders gains involved in private and
public acquisitions. It also seeks to investigate the role of information asymmetry (bid ask
spread) in bidders abnormal return and finally to examine to which extent bidders gain are
related to the relative size of the merger partners. Moreover we tried to identify by using
the MTBV as benchmark for the acquirers firm size, if value acquirers outperform glamour
acquirers in the short run period.
From our analysis several conclusions emerge. First bidders gains from takeovers depend
form the method of payment. In cash offers acquisition of public firms create higher
abnormal return to the shareholders of acquiring firm than acquisitions of private firms. In
contrast acquirers of private firms using stock enjoy positive abnormal returns whereas
acquirers of public firms by stock payment experience significant losses. The above results
confirm the managerial motive hypothesis, asymmetric information hypothesis and
corporate monitoring hypothesis. Second the return available to the shareholders of
acquirers are related to the information asymmetry (bid ask spread). Bidders subject to low
information asymmetry using common equity to finance acquisitions enjoy significant
higher return than bidders subject to high information asymmetry. Third the gain available
to the shareholders of bidding firms is consistent with the relative size of takeover partner.
By using the market value of the acquirers one month prior to the bid announcement we
confirm that small acquirers outperform large acquirers in a short event-period window
surrounding the announcement of bids. Finally by using the MTBV as benchmark for the
acquirers size we document that in the short run period low MTBV value acquirers earn
higher significant abnormal returns than high MTBV glamour acquirers.

19

Fama and French (1992) and Barber and Lyon (1996).

27

MSc Accounting & finance 2008


Overall, our findings suggest that acquirers gains are dependant on target status, method
of payment, information asymmetry and relative size of the partners in acquisitions. Finally
bidders gain higher abnormal return when acquire public targets than private targets with
payment by cash and/or mix, while they experience lower excess return when they acquire
public targets than private targets by stock.

28

MSc Accounting & finance 2008


7. References
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Economics 11, pp.51-83.
Asquith, P., Bruner, R., and Mullins, D., (1983), The Gains to Bidding Firms From Merger.
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Ang, J., and Kohers, N. (2001), The Take-over Market for Privately Held Companies: the
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Bradley, M., Desai A., Kim, E. H. (1983). The Rationale Behind Interfirm Tender Offers:
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Bradley, M., Desai A., Kim, E. H. (1988.) Synergistic Gains from Corporate Acquisitions
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Cheung, Y. L. and Shum, C. K. (1993). Corporate takeover and shareholders wealth in
Hong Kong, British Accounting Review, Vol. 25, pp. 213226.
Conrad, J. and Niden, C. M.(1992). Order flow, trading costs and corporate acquisition
announcements, Financial Management, Vol. 21, pp. 2231.
Copeland Thomas E.

and Galai Daniel. (1983), Information Effects on the Bid-Ask

Spread. Journal of Finance. Vol, 38 ,1457-69.


Da Silva Rosa, R., Limmack, R., Supriadi, and Woodliff, D. (2001), The Equity Wealth
Effects of Method of Payment in Takeover Bids for Privately Held Firms. Australian
Journal of Management.

Demsetz, H., Lehn, K., 1985. The structure of corporate ownership: causes and
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Draper, P. and Paudyal, K. (1999). Corporate takeovers: mode of payment, returns and
trading activity, Journal of Business Finance and Accounting, Vol. 26, pp. 521558.
Draper, P., and Paudyal, K. (2006), Acquisitions: Private versus Public. European
Financial Management 12, pp. 57-80.
Easley D. and O'Hara M. (1987). Price, Trade Size and Information in Securites Markets.
Journal of Financial Economics. Vol. 19, pp.69-90.
Eckbo, B., Espen, R., Giammarino, M., and Heinkel, R. (1990), Asymmetric Information
and the Medium of Exchange in Takeovers: Theory and Tests The Review of Financial
Studies 3, pp. 651-675.
Fuller, K., J. M. Netter, and M. Stegemoller, (2002), What Do Returns to Acquiring Firms
Tell Us? Evidence from Firms that Make Many Acquisitions. Journal of Finance, 57, pp.
1763-1794.
Glosten L. and Milgrom P. (1985), Bid, Ask and Transaction Prices in a Specialist Market
with Heterogeneously Informed Traders. Journal of Financial Economies. Vol. 14, pp. 71100.
Goergen, M. and Ronneboog, L. (2004). Shareholder wealth effects of European domestic
and cross border takeover bids, European Financial Management, Vol. 10, pp. 945.
Hansen, R. G. 1987. A Theory for the Choice of Exchange Medium in Mergers and
Acquisitions. Journal of Business, 60, pp.75-95.
Hansen, R., J., Lott (1996), Externalities and Corporate Objectives in a World with
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Hertzel, M. and Smith, R.L. (1993) Market discounts and shareholders gains for placing
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Firth, M. (1980), Takeovers, Shareholder Returns, and the Theory of the Firm. Quarterly
Journal of Economics 94, pp. 235-260.
Lang, L.H.P., Stulz, R.M., Walkling, R.A., (1991). A test of the free cash flow hypothesis:
the case of bidder returns. Journal of Financial Economics 29, pp. 315336.
Mahate A. and Sudarsanam S. (2003), Glamour Acquirers, Method of Payment and Post
acquisition Performance: The UK Evidence. Journal of Business Finance and Accounting
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Maloney, M.T., McCormick, R.E., Mitchell, M.L., (1993). Managerial decision making and
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Menyah K. and Paudyal K. (2000). The components of bid-ask spreads on the
London Stock Exchange. Journal of Banking & Finance, Vol. 24, pp.1767-1785.
Mitchell, M., Pulvino, T., Stafford, E., (2004). Price pressure around mergers. Journal of
Finance 59, pp.3163.
Moeller, S., Frederik. P. Schlingemann and Rene. M. Stulz (2004), Firm Size and the
Gains from Acquisitions. Journal of Financial Economics 73, pp. 201-228.
Moeller, S., Frederik. P. Schlingemann and Rene. M. Stulz (2007), Do acquirers with more
uncertain growth prospects gain less from acquisitions? Review of Financial Studies,
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Roll, R., (1986). The hubris hypothesis of corporate takeovers. Journal of Business 59,
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8. Figures and Tables

Table 1
The sample consists of all transactions in Thomson Financial SDC mergers and acquisitions database
between 1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the
transaction and ends up with more than 50 percent as a result of the deal. Acquisition activity is the total
number of transactions. Mean, median and total deal values are in UK pounds.

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

Acquisition
Activity
348
398
411
409
434
298
296
250
269
277
304
230

Sum

3924

Deal Value () (000)


Mean
Meadian
Total
42.174526
4.31
14676.735
24.458014
4
8511.389
41.314577
4.5
16980.291
184.39303
7
75416.75
63.710929
6.65
27650.543
89.599413
5.052
26700.625
65.167889
4.32
19289.695
70.318356
6.3285
17579.589
79.675502
5
21432.71
85.123993
10
23579.346
255.63435 11.1605 77712.843
255.62021
14.169
58792.649

Mean
401.16822
314.20621
436.63745
748.71765
1055.6104
745.34503
471.43172
709.58324
903.81647
629.15628
869.02934
1221.0592

Market Value
Market to Book Value
Median
Total
Mean
Meadian
Total
77.735
139606.54 3.0770402
2.17
1070.81
67.29
109343.76 -0.0067816
1.7
1820.69
72.95
179457.99 5.2900973
2.12
2174.23
100.14
306225.52 2.9462347
1.57
1205.01
123.615
458134.91 4.3967972
2.08
1908.21
72.18
222112.82 2.1257383
1.56
633.47
45.98
139543.79 2.3411486
1.5
692.98
51.84
177395.81
2.1784
1.335
544.6
53.9
243126.63 2.031487
1.47
546.47
91.19
174276.29 0.5980144
0.65
165.65
107.36
264184.92 1.7613816
1.83
535.46
107.975
280843.61 2.9622609
2.36
681.32

388323

2694253

Figure 1
Acquisition Activity
500
400
300
200
100
0

Acquisition Activity

19
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
07

Number of Deals

Year

Year

33

11979

MSc Accounting & finance 2008


Table 2
The sample consists of all transactions in Thomson Financial SDC mergers and acquisitions database between 1996
and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction and ends up with more
than 50 percent as a result of the deal. Acquisition activity is the total number of transactions. Mean, median and total
deal values are in UK pounds. Public target (%) is the percentage of transactions where the target is a public firm and
Private target (%) represents the percentage of transactions where the target is unlisted. CAR is the acquirers
percentage market adjusted return for a five day window surrounding the acquisition announcement. Market adjustment
is performed by subtracting the corresponding market return from the acquirers return for each of the five days of the
announcement window. Mean CAR, the average CAR for all transactions in each country, is reported for all, public and
private deals. The sample is winsorized to the top and bottom 1% CARs.

Year
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

Average

Acquisition
Activity
348
398
411
409
434
298
296
250
269
277
304
230

Public

Private

Subsidiaries

12.07%
13.32%
13.38%
19.80%
14.75%
12.42%
22.97%
34.00%
23.42%
31.05%
36.18%
36.52%

59.48%
55.78%
50.12%
50.61%
56.45%
52.68%
54.39%
40.80%
54.28%
55.60%
44.41%
49.57%

27.01%
30.90%
36.25%
29.58%
28.80%
34.90%
22.64%
25.20%
22.30%
13.36%
19.41%
13.91%

22.49%

52.01%

25.36%

Mean Car % Mean Car % Mean Car %


Public
Private
Subsidiaries
0.75%
1.92%
0.98%
-0.66%
1.29%
2.20%
1.52%
2.15%
2.07%
0.90%
2.53%
1.95%
-1.59%
1.09%
0.13%
-2.39%
0.61%
0.44%
10.76%
1.84%
0.22%
6.39%
2.24%
2.99%
6.45%
2.24%
1.59%
5.70%
3.40%
2.85%
7.63%
1.70%
1.78%
10.47%
1.44%
1.92%

4.63%

1.84%

Figure 2

Target Status
80.00%
60.00%
40.00%
20.00%
0.00%

Public
Private

19
96
19
9
19 7
98
19
99
20
0
20 0
01
20
0
20 2
03
20
04
20
0
20 5
06
20
07

Subsidiaries

Year

34

1.49%

MSc Accounting & finance 2008


Table 3 Summary Statistics (public Vs private targets)
Public Targets (N=833)
Mean
Median
Stdev

1144.84
371
4.63%

MV of Bidders (m)
Value of the Deal (m)
Event period Gross Return
(-2, 2 days)in %

89.49
40.06
2.56%

Private Targets (N=2056)


Mean
Median
Stdev

5390.19
1570.58
0.12

408.31
12.2
1.84%

68.87
3.66
0.99%

2593.22
44.21
0.075

Table 4
The sample consists of all transactions in Thomson Financial SDC mergers and acquisitions database between 1996
and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction and ends up with more
than 50 percent as a result of the deal. The transaction value is above 1 million US dollars and the target-to-bidder
relative market value is above one percent. The acquirer has data available in Thomson Financial Datastream.
Acquisition activity is the total number of transactions. All-cash (%) is the percentage of deals financed with pure cash
while all-stocks (%) is the percentage of deals financed with equity. Mixed (%) is the percentage of deals that are neither
financed with all-cash, nor all-shares

Year

All
Stock
9.77%
10.30%
9.98%
9.78%
12.21%
14.43%
7.09%
9.20%
8.55%
8.66%
8.88%
9.57%
9.87%

Mix
52.01%
50.50%
41.12%
44.99%
54.15%
56.71%
39.53%
35.20%
43.12%
43.32%
36.18%
37.39%
44.52%

Cash
28.57%
41.51%
43.64%
38.27%
43.75%
37.84%
77.94%
67.06%
66.67%
62.79%
79.09%
72.62%
54.98%

Public
Stock
42.86%
37.74%
34.55%
25.93%
37.50%
43.24%
7.35%
17.65%
19.05%
17.44%
14.55%
16.67%
26.21%

Mix
28.57%
20.75%
21.82%
35.80%
18.75%
18.92%
14.71%
15.29%
14.29%
19.77%
6.36%
10.71%
18.81%

Cash
26.57%
31.98%
37.38%
34.78%
19.59%
12.74%
35.40%
38.24%
36.30%
33.77%
32.59%
34.21%
31.13%

Private
Stock
6.28%
4.95%
6.80%
5.31%
8.98%
9.55%
7.45%
5.88%
5.48%
3.90%
5.19%
4.39%
6.18%

Mix
67.15%
63.06%
55.83%
59.90%
71.43%
77.71%
57.14%
55.88%
58.22%
62.34%
62.22%
61.40%
62.69%

Figure 3
ALL
60.00%

Cash

40.00%

Stock

20.00%

Mix

0.00%

19
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
01
20
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
07

Cash

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Mean

Cash
38.22%
39.20%
48.91%
45.23%
33.64%
28.86%
53.38%
55.60%
48.33%
48.01%
54.93%
53.04%
45.61%

Year

35

Subsidiaries
Cash
Stock
Mix
64.89%
3.19%
31.91%
51.22%
8.13%
40.65%
67.11%
5.37%
27.52%
67.77%
6.61%
25.62%
56.00%
5.60%
38.40%
50.00% 11.54% 38.46%
71.64%
5.97%
22.39%
68.25%
3.17%
28.57%
58.33%
5.00%
36.67%
72.97%
8.11%
18.92%
61.02%
6.78%
32.20%
68.75%
9.38%
21.88%
63.16%
6.57%
30.27%

MSc Accounting & finance 2008


Figure 4
Public
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%

Cash
Stock

19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07

Mix

Year

Figure 5
Private
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%

Cash
Stock

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

Mix

Year

Figure 6

Mix
80.00%
60.00%

Cash

40.00%

Stock

20.00%

Mix

Year

36

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0.00%

MSc Accounting & finance 2008


Table 5 Short-run abnormal returns to acquirers
The sample consists of all transactions in Thomson Financial SDC global mergers and acquisitions database
between 1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction
and ends up with more than 50 percent as a result of the deal. The transaction value is above 1 million UK pounds
and the target-to-bidder relative market value is above one percent. The acquirer has data available in Thomson
Financial Datastream. Mean cumulative market adjusted returns (CARs) for a five day window surrounding the
acquisition announcement are reported. Market adjustment is performed by subtracting the corresponding market
return from the acquirers return for each of the five days of the announcement window. The sample is winsorised
to the top and bottom 1% CARs. Results are reported for all, public, private and subsidiaries deals and individually
for all-cash (Cash), all-stock (Stock) deals and mixed deals which comprise all remaining offers. The table also
reports differentials between public and private acquisitions in each case using sample t-tests for means. ***, **,
and * denote statistical significance at the 1,5 and 10 percent level respectively. The sample size is reported
below t-test.

mean
All

t-stat
N
mean

Cash

t-stat
N
mean

Stock

t-stat
N
mean

Mix

t-stat
N

ALL

Publ

Priv

Sub

Priv Vs Publ

2.33%***
(17.26)
3924
3.3%***
(16.56)
1756
0.75%*
(1.44)
392
1.74%***
(9.04)
1776

4.61%***
(11.62)
833
7.63%***
(14.87)
490
-0.36%*
(-0.51)
195
1.25%**
(1.42)
148

1.84%***
(11.1)
2056
1.48%***
(6.81)
627
1.56%*
(1.57)
130
2.1%***
(9.19)
1299

1.45%***
(6.83)
1035
1.68%***
(6.68)
639
2.59%**
(2.23)
67
0.89%**
(2.14)
329

2.78%***
(6.46)

37

6.07%***
(10.8)
-1.86%
(-1.57)
-0.758%*
(-0.83)

MSc Accounting & finance 2008

Table 6
The sample consists of all transactions in Thomson Financial SDC global mergers and acquisitions database
between 1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction
and ends up with more than 50 percent as a result of the deal. The transaction value is above 1 million UK pounds
and the target-to-bidder relative market value is above one percent. The acquirer has data available in Thomson
Financial DataStream. Acquirers are sorted in three subsets based on their relative size (large, medium and low)
and target status (all, private, public, subsidiaries), and the method of payment (cash, stock, mix). Panel A reports
results for all ragets, panel B for private targets, panel C for private targets, D for subsidiaries and E for differential
between public and private. Cumulative market adjusted returns (CARs) for a five day window surrounding the
acquisition. Market adjustment is performed by subtracting the corresponding market return from the acquirers
return for each of the five days of the announcement window. The sample is winsorised to the top and bottom 1%
CARs. The table also reports differentials between public and private acquisitions in each case using sample ttests for means. ***, **, and * denote statistical significance at the 1, 5 and 10 percent level respectively. The
sample size is reported below t-test.

Relative size
Panel A
ALL
All

Cash

Stock

Mix

ALL

Cash

Stock

Mix

Cash

Stock

Mix

Low

HML

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

4.63%*** 5.89%*** 1.57%**


-0.78%
6.67%***
(11.64)
(12.26)
(1.97)
(-0.98)
(7.17)
833
627
137
69
7.64%*** 10.10%*** 2.72%***
-0.31%
10.41%***
(14.87)
(16.33)
(2.84)
(-0.00311)
(9.58)
490
349
86
55
-0.36%
0.20%
-2.09%
-3.19%
3.39%
(-0.51)
(0.26)
(-1.1)
(-1.31)
(1.32)
195
152
33
10
1.25%
1.11%
2.76%
-1.18%
22.90%
(1.42)
(0.0111)
(0.0276) (-0.01177)
(1.94)
148
126
18
4
Panel C

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

1.84%*** 2.95%*** 2.15%*** 1.00%*** 1.96***%


(11.1)
(5.98)
(8.51)
(4.81)
(3.65)
2056
437
762
857
1.48%*** 5.16%*** 1.48%*** 0.91%*** 4.24%***
(6.81)
(5.43)
(3.53)
(0.00912)
(4.31)
627
69
202
356
1.56%*
1.54%
2.54%**
0.02%
1.51%
(1.57)
(0.92)
(2.15)
(0.01)
(0.66)
130
62
38
30
2.01%*** 2.74%*** 2.3%*** 1.12%*** 1.62%**
(9.19)
(4.75)
(7.45)
(0.01123)
(2.47)
1299
306
522
471

ALL

Priv
All

Medium

2.34%*** 4.22%*** 1.90%*** 0.90%*** 3.32%***


(17.27)
(13.88)
(9.62)
(5.26)
(9.51)
3924
1308
1308
1308
3.30%*** 8.06%*** 1.64%*** 0.98%*** 7.08%***
(16.56)
(17.03)
(5.63)
(0.00983)
(13.78)
1756
524
543
689
0.75%
0.68%
1.49%
-0.14%
0.82%
(1.48)
(0.97)
(1.58)
(-0.13)
(0.66)
392
237
95
60
1.74%*** 2.06%*** 2.17%*** 0.91%*** 1.16%**
(9.04)
(4.8)
(7.91)
(0.00908)
(2.21)
1776
547
670
559
Panel B

Publ
All

High

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

ALL

High

Medium

High

Medium

38

Low

Low

HML

HML

MSc Accounting & finance 2008

Table 6
Panel D
Sub
All

Cash

Stock

Mix

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

ALL
1.49%***
(6.83)
1035
1.68%***
(6.68)
639
2.59%**
(2.23)
67
0.89%**
(2.14)
329

High
2.17%***
(4.02)
244
3.25%***
(4.33)
106
1.58%
(0.61)
23
1.30%*
(1.72)
115

Medium
Low
HML
1.55%*** 0.98%*** 1.19%*
(4.74)
(3.03)
(1.89)
409
382
1.41%*** 1.33%*** 1.93%**
(3.41)
(0.01329)
(2.35)
255
278
4.75%***
1.15%
0.43%
(2.91)
(0.72)
(0.14)
24
20
1.25%*
-0.20%
1.49%
(2.25) (-0.00198) (1.24)
130
84

Panel E
Publ Vs Priv
All

Cash

Stock

Mix

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

ALL
2.79***%
(6.48)

High
2.94%***
(4.27)

Medium
-0.58%
(-0.69)

Low
-1.78%**
(-2.15)

6.07%***
(10.8)

4.94%***
(4.36)

1.24%
(1.18)

-1.22%
(-0.01223)

-1.84%
(-1.57)

-1.34%
(-0.72)

-4.63%**
(-2.07)

-3.21%
(-1.1)

-0.76%
(-0.83)

-1.63%
(-1.4)

0.39%
(0.26)

-2.3%**
(-0.023)

39

MSc Accounting & finance 2008

Table 7
The sample consists of all transactions in Thomson Financial SDC global mergers and acquisitions database
between 1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction
and ends up with more than 50 percent as a result of the deal. The transaction value is above 1 million UK pounds
and the target-to-bidder relative market value is above one percent. The acquirer has data available in Thomson
Financial DataStream. Acquirers are sorted in three subsets based on their market value (large, medium and low)
and target status (all, private, public, subsidiaries), and the method of payment (cash, stock, mix). Panel A reports
results for all ragets, panel B for private targets, panel C for private targets, D for subsidiaries and E for differential
between public and private. Cumulative market adjusted returns (CARs) for a five day window surrounding the
acquisition. Market adjustment is performed by subtracting the corresponding market return from the acquirers
return for each of the five days of the announcement window. The sample is winsorised to the top and bottom 1%
CARs. The table also reports differentials between public and private acquisitions in each case using sample ttests for means. ***, **, and * denote statistical significance at the 1, 5 and 10 percent level respectively. The
sample size is reported below t-test.

40

MSc Accounting & finance 2008


Market Value
Panel A
ALL
All

Cash

Stock

Mix

ALL

Cash

Stock

Mix

Cash

Stock

Mix

Low

HML

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

4.63%*** 3.12%*** 5.37%*** 5.62%*** -2.5%**


(11.64)
(5.54)
(7.53)
(7.14)
(-2.58)
833
305
251
277
7.64%*** 4.56%*** 9.56%*** 9.23%*** -4.68%***
(14.87)
(6.29)
(10.52)
(9.55)
(-3.85)
490
181
138
171
-0.36%
1.08%
-1.43%
-0.51%
1.59%
(-0.51)
(0.85)
(-1.29)
(-0.41)
(0.89)
195
58
68
69
1.25%
0.87%
2.69%
0.18%**
0.68%
(1.42)
(0.75)
(1.77)
(0.08)
(0.27)
148
66
45
37
Panel C

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

1.84%*** 1.12%***
2%***
2.23%*** -1.03%**
(11.1)
(4.52)
(8.2)
(6.64)
(-2.4)
2056
617
721
718
1.48%*** 0.92%*** 1.81%*** 2.18%*** -1.27%**
(6.81)
(2.92)
(4.85)
(4)
(-2.01)
627
242
221
164
1.56%*
0.16%
2.88%
1.17%
-1.01%
(1.57)
(0.08)
(2.03)
(0.83)
(-0.4)
130
21
36
73
2.01%*** 1.45%*** 2.02%*** 2.4%***
-0.95%*
(9.19)
(3.7)
(6.38)
(5.81)
(-1.66)
1299
354
464
481

ALL

Priv
All

Medium

2.34%*** 1.7%***
2.6%***
2.7%*** -1.03%***
(17.27)
(8.42)
(11.84)
(9.89)
(-3.02)
3924
1308
1308
1308
3.3%*** 1.98%*** 3.86%*** 4.63%*** -2.66%***
(16.56)
(7.71)
(11.23)
(9.95)
(-5)
1756
717
562
477
0.75%
1.46%
0.26%
0.72%
0.74%
1.48
1.58
0.32
0.82
0.58
392
97
128
167
1.74%*** 1.34%*** 1.93%*** 1.86%*** -0.00525
(9.04)
(3.97)
(6.59)
(5.2)
(-1.07)
1776
494
618
664
Panel B

Publ
All

High

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

High

ALL

High

Table 7

41

Medium

Medium

Low

Low

HML

HML

MSc Accounting & finance 2008


Panel D
Sub
All

Cash

Stock

Mix

ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

Publ Vs Priv

High

Medium

Low

1.49%*** 1.36%*** 1.8%*** 1.31%***


(6.83)
(4.75)
(4.63)
(2.79)
1035
386
336
313
1.68%*** 1.23%*** 2.19%*** 1.87%***
(6.68)
(3.84)
(4.75)
(2.95)
639
294
203
142
2.59%** 4.2%**
1.12%
2.83%
(2.23)
(2.82)
(0.64)
(1.17)
67
18
24
25
0.89%** 1.19%** 1.23%*
0.50%
(2.14)
(1.74)
(1.65)
(0.73)
329
74
109
146
Panel E
ALL

High

Medium

Low

All

mean
t-stat

2.79***% 1.92%*** 3.37%*** 3.39%***


(6.48)
(3.09)
(4.47)
(3.97)

Cash

mean
t-stat

6.07%*** 3.68%*** 7.79%*** 7.09%***


(10.8)
(4.62)
(7.9)
(6.36)

Stock

mean
t-stat

-1.84%
(-1.57)

0.92%
(0.38)

-4.31%**
(-2.39)

-1.68%
(-0.89)

Mix

mean
t-stat

-0.76%
(-0.83)

-0.59%
(-0.48)

0.67%
(0.43)

-2.22%
(-0.98)

Table 8

42

HML

0.06%
(0.1)
-0.64%
(-0.9)
1.38%
(0.49)
0.69%
(0.71)

MSc Accounting & finance 2008


The sample consists of all transactions in Thomson Financial SDC global mergers and acquisitions database between
1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction and ends up with
more than 50 percent as a result of the deal. The transaction value is above 1 million UK pounds and the target-to-bidder
relative market value is above one percent. The acquirer has data available in Thomson Financial DataStream.
Acquirers are sorted in three subsets based on their market to book value (large, medium and low) and target status (all,
private, public, subsidiaries), and the method of payment (cash, stock, mix). Panel A reports results for all ragets, panel B
for private targets, panel C for private targets, D for subsidiaries and E for differential between public and private.
Cumulative market adjusted returns (CARs) for a five day window surrounding the acquisition. Market adjustment is
performed by subtracting the corresponding market return from the acquirers return for each of the five days of the
announcement window. The sample is winsorised to the top and bottom 1% CARs. The table also reports differentials
between public and private acquisitions in each case using sample t-tests for means. ***, **, and * denote statistical
significance at the 1, 5 and 10 percent level respectively. The sample size is reported below t-test.
Market to Book Value
Panel A
ALL
All

Cash

Stock

Mix

ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

Publ
All

Cash

Stock

Mix

ALL

Cash

Stock

Mix

Medium

Low

HML

High

Medium

Low

HML

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

4.63%*** 3.53%*** 5.75%*** 4.62%***


-1.09%
(11.64)
(4.7)
(8.19)
(7.43)
( -1.12)
833
237
234
362
7.64%*** 5.93%*** 8.35%*** 8.4%*** -2.47%**
(14.87)
(6.8)
(9.91)
(9.25)
(-1.96)
490
148
150
192
-0.36%
-2.00%
0.95%
-0.14%
-1.86%
(-0.51)
(-1.25)
(0.62)
(-0.16)
(-1.02)
195
50
46
99
1.25%
1.55%
1.27%
1.07%
0.48%
(1.42)
(0.75)
(0.83)
(0.89)
(0.2)
148
39
38
71
Panel C

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

1.84%*** 1.73%*** 1.54%*** 2.37%***


(11.1)
(6.73)
(6.28)
(6.26)
2056
770
727
559
1.48%*
1.04%*** 1.74%*** 2.03%***
(6.81)
(2.95)
(4.59)
(4.23)
627
229
224
174
1.56%*
1.70%
-2.42%
2.20%
(1.57)
(1.06)
(-1.09)
(1.67)
130
48
15
67
2.01%*** 2.06%*** 1.57%*** 2.6%***
(9.19)
(6.19)
(5.01)
(4.76)
1299
493
488
318

Priv
All

High

2.34%*** 1.94%*** 2.31%*** 2.77%*** -0.83%**


(17.27)
(8.54)
(10.88)
(10.59)
(-2.4)
3924
1308
1308
1308
3.30%*** 2.60%*** 3.35%*** 3.90%*** -1.29%***
(16.56)
(8)
(10.6)
(10.11)
(-2.56)
1756
554
599
603
0.75%
0.17%
0.12%
1.39%
-1.22%
1.48
0.18
0.1
1.99
-1.01
392
118
83
191
1.74%*** 1.68%*** 1.62%*** 1.95%***
-0.27%
(9.04)
(5.26)
(5.69)
(4.8)
(-0.51)
1776
636
627
513
Panel B

ALL

High

Medium

43

Low

HML

-0.00641
(-1.4)
-0.99%*
(-1.67)
-0.50%
(-0.24)
-0.54%
(-0.85)

MSc Accounting & finance 2008

Table 8
Panel D
Sub
All

Cash

Stock

Mix

ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

Publ Vs Priv

High

Medium

Low

1.49%*** 1.21%*** 1.63%*** 1.59%***


(6.83)
(2.84)
(4.53)
(4.44)
1035
301
348
386
1.68%*** 1.85%*** 1.6%*** 1.62%***
(6.68)
(3.86)
(4.14)
(3.65)
639
177
225
237
2.59%**
1.94%
0.11% 4.28%***
(2.23)
(1.28)
(0.05)
(2.83)
67
20
22
25
0.90%** -0.04% 2.00%*** 0.78%
(2.14)
(-0.05)
(2.79)
(1.3)
329
104
101
124
Panel E
ALL

High

Medium

Low

All

mean
t-stat

2.79%*** 1.80%** 4.21%*** 2.25%***


6.48
(2.27)
(5.66)
(3.09)

Cash

mean
t-stat

6.07%*** 4.89%*** 6.61%*** 6.37%***


10.8
(5.21)
(7.15)
(6.21)

Stock

mean
t-stat

-1.84%
-1.57

-3.70%
(-1.63)

3.37%
(1.25)

-2.34%
(-1.48)

Mix

mean
t-stat

-0.76%
-0.83

-0.51%
(-0.24)

-0.30%
(-0.19)

-1.53%
(-1.15)

Figure 7

44

HML

-0.39%
( -0.69)
0.23%
(0.35)
-0.0335
(-1.39)
-0.82%
(-0.78)

MSc Accounting & finance 2008

Glamour firms - Method of Payment

42%
49%

Cash
Stock
Mix

9%

Figure 8
Value firms - Method of Payment

39%

Cash
46%

Stock
Mix

15%

Table 9

45

MSc Accounting & finance 2008


Bid Ask Spread
Panel A
ALL
All

Cash

Stock

Mix

ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

Publ
All

Cash

Stock

Mix

Priv
All

Cash

Stock

Mix

Low

HML

High

Medium

Low

HML

4.63%*** 3.58%*** 3.98%*** 5.92%*** -2.34%**


(11.64)
(5.26)
(5.62)
(8.9)
(-2.46)
833
260
241
332
7.63%*** 6.47%*** 7.62%*** 8.42%*** -1.95%
(14.87)
(7.03)
(8.4)
(10.15)
(-1.57)
490
141
136
213
-0.36%
-0.15%
-2.56%*
1.05%
-1.20%
(-0.51)
(-0.14)
(-1.81)
(0.86)
(-0.74)
195
79
50
66
1.25%
0.77%
0.90%
1.97%
-1.20%
(1.42)
(0.43)
(0.73)
(1.2)
(-0.49)
148
40
55
53
Panel C
ALL

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

Medium

2.34%*** 1.86%*** 2.10%*** 3.05%*** -1.18%***


(17.27)
(7.88)
(9.85)
(12.16)
(-3.44)
3924
1308
1308
1308
3.30%*** 2.93%*** 3.09%*** 3.84%*** -0.90%*
(16.56)
(8.57)
(9.91)
(10.22)
(-1.78)
1756
548
597
611
0.75%
-0.46%
0.18% 2.44%*** -2.90%**
1.48
-0.59
0.19
2.69
-2.42
392
149
101
142
1.74%*** 1.47%*** 1.46%*** 3.34%*** -0.87%*
(9.04)
(4.21)
(4.9)
(6.67)
(-1.75)
1776
611
610
555
Panel B
ALL

mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

High

High

Medium

Low

1.84%*** 1.61%*** 1.66%*** 2.27%***


(11.1)
(5.33)
(6.62)
(7.44)
2056
707
691
658
1.48%*** 1.63%*** 1.41%*** 1.66%***
(6.81)
(3.79)
(3.91)
(4.09)
627
196
225
206
1.56%*
-0.52%
1.68%
2.99%*
(1.57)
(-0.33)
(1.16)
(1.81)
130
44
32
54
2.01%
1.80%
1.79%
2.48%
(9.19)
(4.59)
(5.31)
(6.21)
1299
467
434
398

Table 9

46

HML

-0.66%
(-1.53)
-0.03%
(-0.06)
-3.51%
(-1.54)
-0.68%
(-1.21)

MSc Accounting & finance 2008


Panel D
Sub
All

Cash

Stock

Mix

ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N

Publ Vs Priv

High

Medium

Low

1.49%*** 1.06%*** 1.72%*** 1.66%***


(6.83)
(2.75)
(4.8)
(4.31)
1035
341
376
318
1.68%*** 1.79%*** 2.07%*** 1.09%**
(6.68)
(3.97)
(5.1)
(2.38)
639
211
236
192
2.59%*
-1.30% 4.85%** 5.23%**
(2.23)
(-0.75)
(2.38)
(2.57)
67
26
19
22
0.90%** 0.25%* 0.54%** 1.97%***
(2.14)
(0.31)
(0.77)
(2.86)
329
104
121
104
Panel E
ALL

High

Medium

Low

All

mean
t-stat

2.79***% 1.97*** 2.31%*** 3.66%***


6.48
(2.65)
(3.08)
(5)

Cash

mean
t-stat

6.07%*** 4.84%*** 6.21%*** 6.76%***


10.8
(4.76)
(6.35)
(7.32)

Stock

mean
t-stat

-1.84%
-1.57

0.37%
(0.2)

-4.24%** -1.94%**
(-2.09)
(-0.94)

Mix

mean
t-stat

-0.76%
-0.83

-1.03%
(-0.56)

-0.89%**
(-0.7)

47

0.52%
(-0.3)

HML

-0.58%
(-1.06)
0.70%
(1.09)
-6.53**
(-2.44)
-1.72%
(-1.65)