Does Short-selling Potential Influence Mergers and Acquisitions Payment Choice?



Announcements of stock-financed mergers and acquisitions (M&As) may attract short selling of bidder shares by merger arbitrageurs. We hypothesize that bidders with higher short-selling potential include a higher proportion of cash in their M&A payments to reduce price pressure resulting from arbitrage short sales. Consistent with this prediction, we find a positive impact of the ex-ante net lending supply of bidder shares on the percentage of cash in public target payments. We corroborate this result in a placebo analysis and several robustness tests. Our paper adds to a growing literature analyzing the interplay between corporate and investor behavior.

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Meeting ID: 978 5968 8620