The Role Of Acquirer Preferences On Method Of Payment Decision:

As competitive pressure inevitably intensifies amidst the deepening of economic globalization,this has heightened the intention of Chinese firms to pursue M&A as a means that grants competitive advantage.The financial aspects of M&A have been extensively studied on firms in developed markets,particularly the method of payment decision.Prior studies have documented that cash is the predominant payment method in Chinese M&A transactions.However,much is still unknown about what shapes such a preference of Chinese acquirers.The objective of this paper is to investigate the factors influencing the acquirer's preference between cash and stock payments in China.Specifically,we test predictions connected to information asymmetries,corporate control considerations,and the acquirer's financial condition using observable characteristics of the acquiring firm and the transaction.Our analysis is based on a sample of 425 Chinese M&A transactions in 2017.Through binary logit analysis,we find that cash-rich firms,as well as those with a dominant shareholder as a result of having concentrated ownership structure,have a greater propensity to pay with cash.Stock payments are preferred by acquirers with higher growth opportunities and in cases when transaction-risks are severe.However,we find no evidence that the ability of the acquiring firm to obtain debt financing plays an important role in the decision to use a cash payment.