How do firms choose payment method in M&As?

University essay from Lunds universitet/Företagsekonomiska institutionen

Abstract: The purpose of this project is to examine if the existence of a credit rating and if the level of credit rating for the acquirer and target influences which financing source is used in cross-border and domestic M&As. The empirical methods used are the probit and GLM logit models. The dependent variables are the binary, payment method, and the fraction of cash. The main explanatory variables are the existence of credit rating, credit rating level, and cross-border. The theories applied in this thesis are related to credit ratings, capital structure and information asymmetry. These theories include, for example, the trade-off theory and the pecking order theory. The study is made on domestic and cross-border M&As on the European market. The time frame used is the years between 2000 and 2018. The results from this study imply that the existence of a credit rating does not have a significant effect on the choice of payment method, but the level of the credit rating has a positive effect on using cash as payment. The conclusion from this is that credit ratings seem to have less impact in Europe than in the US.

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