What Determines The Financing Decision In Corporate Takeovers: Cost Of Capital, Agency Problems, Or The Means Of Payment?

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Executive Summary

While the means of payment in takeovers has been a focal point in the takeover literature, what has largely been ignored is the analysis of how the takeover bid is financed and what its impact is on the expected value creation of the takeover. This paper investigates the sources of transaction financing in European corporate takeovers launched during the period 1993-2001 (the fifth takeover wave). Using a unique dataset, the authors show that the external sources of financing (debt and equity) are frequently employed in takeovers involving cash payments. Acquisitions with the same means of payment but different sources of transaction funding are quite distinct.

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