What Determines Payment Methods and Deal Amount in Corporate Merger and Acquisitions in Pakistan

2014:97

The present study examines the determinants of payment mode choice and deal amounts in financial and nonfinancial sectors mergers and acquisitions (M&A) in Pakistan, undertaken during period 2005–2012. The results of nonfinancial sector show a negative and linear relation between managerial ownership and cash financing that supports the risk reduction hypothesis. The bidder firm’s financial variables and target firm listing status are also proved to be significant determinants of payment mode. The results of deal price determinants in nonfinancial sector reveal the reduction of agency conflicts in bidder firms and show that main motive behind M&A deals is to achieve a big size and prestige rather than value maximisation. The financial sector results show that ownership structure has no significant impact on payment mode choice in Pakistan M&A. However, bidder firm’s cash availability and growth opportunities and target firm characteristics are significant determinant of payment method. The deal price determinants findings show that prices are high in stock financed deals due to signalling impact of stock issuance and basic motive of bidders behind M&A is to acquire a big size in case of financial sector.