How do payment methods and other deal characteristics affect abnormal returns? - A comparison of “high-tech” versus “non-high-tech” industries in the European M&A market.

Abstract

This master thesis investigates whether payment method affects the target company’s cumulative abnormal return (CAR), if the premium paid is larger for cash-financed acquisitions, and if Research and Development (R&D) expense and intangible assets can explain CAR for high-tech target companies. We use a dataset of 463 European M&A transactions, between 2000 and 2018, and a sub-sample of 73 high-tech transactions within the same time period. To investigate our chosen research questions, we use a standard event study methodology with countryspecific value-weighted indexes in addition to specified regression models for each question. Our results indicate that cash as a payment method is superior to stock when examining CAR for target shareholders. These findings are supported by other researchers based on data from the US M&A market. In contrast to previous research, we find no relationship between higher bid premiums and payment method. Further, we find that high-tech targets experience higher CAR, compared to companies in other industries. Using a sub-sample of high-tech targets, we find that targets with higher R&D expenses experience higher CAR. However, intangible assets as an explanatory variable is insignificant when regressed against CAR. We argue that this might be due to the difficulty in valuing intangible assets, and the leeway firms have when it comes to reporting their real value.