We investigate how the liquidity and trading activity effects of the announcement of the acquisition of private targets vary by payment method. We find significant increases in trading activity around acquisition announcement dates irrespective of the payment method used; however, fluctuations are lower for acquisitions financed by earnouts and cash. Similarly, the stocks of acquirers using cash and earnouts are also less affected by a general loss of liquidity that accompanies announcements. We show that these effects are explained by the interpretation of cash acquisition by the market as an option used when acquirers perceive no risk of being adversely selected, and the potential of earnout as an adverse selection risk reduction tool.

The liquidity and trading activity effects of acquisition payment methods: Evidence from the announcements of private firms' acquisitions

Eleonora Monaco
Primo
;
Riccardo Palumbo;
2022-01-01

Abstract

We investigate how the liquidity and trading activity effects of the announcement of the acquisition of private targets vary by payment method. We find significant increases in trading activity around acquisition announcement dates irrespective of the payment method used; however, fluctuations are lower for acquisitions financed by earnouts and cash. Similarly, the stocks of acquirers using cash and earnouts are also less affected by a general loss of liquidity that accompanies announcements. We show that these effects are explained by the interpretation of cash acquisition by the market as an option used when acquirers perceive no risk of being adversely selected, and the potential of earnout as an adverse selection risk reduction tool.
File in questo prodotto:
File Dimensione Formato  
1-s2.0-S105752192200148X-main.pdf

Solo gestori archivio

Tipologia: PDF editoriale
Dimensione 713.56 kB
Formato Adobe PDF
713.56 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11564/775801
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 1
  • ???jsp.display-item.citation.isi??? 1
social impact