How Financing Constraints Affect The Choice Of M&A Payment Method

Facing with surging transactions of mergers and acquisitions, M & A is still a hot topic of academic research. A series of topics derived from M & A transactions.Including the research of mergers and acquisition’s motivations,the evaluation of enterprise’s performance after M & A transaction,the mode innovation of M & A, the enterprise’s financial and tax risk after M & A transaction,the enterprise’s integration after the M & A transaction. The study about the method of payment of M & A transaction are still at the stage of normative research, although we have made a lot of achievements, but still lack of empirical studies.The related researchs about the method of payment are based on an underlying assumption:there are no financing constraints in all companies.So the factor of financing constraint is not considered in the influencing factors of M & A.China’s economy is now in the stage of transformation and development.Asymmetric information and agency problems resulting from imperfect capital market is far more serious than the developed countries. Asymmetric information and agency problems will bring out different internal and external financial cost which finally leads to the problem of financing constraint.So financing constraint is a problem that all china’s enterprises have to face in the process of development.A financing constrained company tends to keep more cash in preparation for future investment demand, it will inevitably affect the investment and financing decision-making, so it causes the enterprise to choose different methods of payment in M&A transaction. This paper takes the financing constraint for the new angle of view. The main research is how financing constrained companies will make choices between cash and stock payment methods in M&A transaction. And the existence of financing constraints will bring the company which can produce lots of free cash flow to make a completely different choice of payment methods compared with no financing constraints. So the research of this paper will be an important complement and empirical test on the existing financial constraints theory and methods of payment theory.In this paper, by combining with the research on theory and practice, arranged the financing constraints theory, the M&A payment choice theory, clarified their influence. According to the statistical data, I analyzed the current situation of chinese M&A market.and by sorting out the M&A event in chinese market from 2008 to 2013,using the logistic regression method,I got the main conclusions as follows:(1)A company with financing constraints is more likely choosing stock to realise the payment; (2)By leading in the cash flow and financing constraints logistic regression,we find that cash flow has a lower influence to M & A payment,even a compay in a higher cash flow levels,may also give up the cash payment but choose stock payment when it’s in financing constraints.