Stock Market Reactions to Financing and Payment Decisions for European Mergers and Acquisitions


  • Wolfgang Bessler University of Groningen
  • David Kruizenga
  • Wim Westerman University of Groningen, The Netherlands



mergers & acquisitions, abnormal returns, financing sources, payment methods, Europe


Aim: We analyze stock market reactions to merger and acquisition announcements for firms in Europe and contribute to the literature by providing empirical evidence how the decisions with respect to alternative financing sources (equity or debt) and the methods of payment (cash or stock) affect the magnitude of the valuation effects.


Research design: An event study methodology is applied to 717 M&A transactions. We analyze the size of the cumulative abnormal returns using the financing sources and payment methods and other variables as the relevant determinants.


Findings: The cumulative abnormal results suggest that target shareholders and bidder shareholders in private deals benefit from mergers and acquisitions. The effect found is centered around the announcement date, making our findings consistent with market efficiency. Debt financed deals outperform equity financed deals and cash paid M&A outperform stock paid M&As, due to information asymmetry, signaling and agency effects.


Originality: This study adds to our understanding of the relevance of the financing sources and the payment methods for mergers and acquisitions in Europe.


Implications: This study may help practitioners to better assess the valuation effects of alternative financing sources and payment methods when acquiring other firms.



JEL: G32, G34


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