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The wealth effects of mergers and acquisitions by dividend payers

The wealth effects of mergers and acquisitions by dividend payers
The wealth effects of mergers and acquisitions by dividend payers
We document a more favorable market reaction to the announcement of mergers and acquisitions (M&As) by dividend-paying acquirers when compared to non-paying acquirers. Dividend-paying acquirers are associated with greater improvements in return on assets post-M&A. Furthermore, dividend-paying acquirers hold higher levels of cash and are more likely to engage in cash financed deals. We infer that an existing dividend payment policy acts as a disciplinary mechanism forcing managers to engage in value-adding M&As, restricting self-motivated empire-building acquisitions. In order to preserve their ability to maintain dividends, dividend paying acquirers seek targets that can contribute to free cash flow.
dividend policy, dividends, event studies, mergers and acquisitions, takeovers
1062-9769
154-165
Glambosky, Mina
640a0679-51db-45ed-9f48-befbc67ae01d
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b
Glambosky, Mina
640a0679-51db-45ed-9f48-befbc67ae01d
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b

Glambosky, Mina, Jory, Surendranath and Ngo, Thanh (2020) The wealth effects of mergers and acquisitions by dividend payers. Quarterly Review of Economics and Finance, 78, 154-165. (doi:10.1016/j.qref.2020.01.013).

Record type: Article

Abstract

We document a more favorable market reaction to the announcement of mergers and acquisitions (M&As) by dividend-paying acquirers when compared to non-paying acquirers. Dividend-paying acquirers are associated with greater improvements in return on assets post-M&A. Furthermore, dividend-paying acquirers hold higher levels of cash and are more likely to engage in cash financed deals. We infer that an existing dividend payment policy acts as a disciplinary mechanism forcing managers to engage in value-adding M&As, restricting self-motivated empire-building acquisitions. In order to preserve their ability to maintain dividends, dividend paying acquirers seek targets that can contribute to free cash flow.

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Accepted/In Press date: 29 January 2020
e-pub ahead of print date: 6 February 2020
Keywords: dividend policy, dividends, event studies, mergers and acquisitions, takeovers

Identifiers

Local EPrints ID: 438561
URI: http://eprints.soton.ac.uk/id/eprint/438561
ISSN: 1062-9769
PURE UUID: 9594d891-916b-4822-b745-5cbd4b068ab4
ORCID for Surendranath Jory: ORCID iD orcid.org/0000-0002-8265-0001

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Date deposited: 17 Mar 2020 17:30
Last modified: 28 Apr 2022 05:52

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Contributors

Author: Mina Glambosky
Author: Thanh Ngo

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