The Method of Payment Decision in Australian Takeovers: An Investigation of Causes and Effects

Abstract

We research and document that the abnormal returns earned by Australian bidders and targets over the bid announcement period are not significantly associated with the proposed medium of exchange, i.e. cash or shares. However, over the long-term post-bid period, bidders who offer shares significantly under-perform regardless of bid outcome. Importantly, this result is after controlling for firm size, survival bias and method of return computation. Finally, the size of the target relative to the bidder firm and the variability of bidding firms' share price prior to the bid announcement are both positively associated with the probability of a share offer.