Financial Constraint,the Choice Of Payment Method And The M&A Performance

As a basic mode of optimization and reallocation of social resources,mergers and acquisitions(M&A)has become an important way for companies to expand the scale, and it is also gradually playing a decisive role in the process of realizing the industrial structure adjustment. M&A payment, as the last step of the deal, is a determinant whether the deal can be sucessfully completed.While M&A performance can test whether both parties, acquier and target, could realize the value growth through the following integration.In the most present foreign and domestic academic papers about M&A, there is a potential assumption that companies’financing sources are not restricted. Actually, imperfect capital market leads to some companies facing external financial constraint. In the economic transition period. China’s capital market is not well developed, so the financial constraint is an issue that companies should not ignore when seeking developments. A large number of existing empirical studies have provided that compared to unconstrained companies, financial constrainted companies tend to save cash from the cash flow constantly, in order to hold more cash to avoid inadequate investment in the future. Similarly, it is that the high cost of external financing and preferences of holding a large amount of cash, also affect the constrained companies’ choice of payment methods. If the financing unrestriction assumption was relaxed, what conclusions could be got studying the effect of financial constraint on acquirers’payment chioces? There have been various kinds of payments since the complement of equity division reform in our demastic M&A market. Under this backgroud, How the different choice of the M&A payments could influence the acquirers’performance? Whether the different degree of financial constraint could affect the direction and size of this effect? These problems have gradually become a new focus in the current M&A theoretical and empirical studies all aroud the world. The main problem this paper intends to solve is to study the above problems based on China’s institutional environment and the M&A practices of listed companies.The study sample is the M&A events of Chinese listed companies from2009to2011.Using a comprehensive financial constraint index constructed by the Logit regression model, it is empirically tested the influence of financial constraint on acquirers’ payment chioces. Meanwhile, we adopted event study testing M&A performance differences between the different payment methods. Moreover, it is explored the interacted effect of financial constraint and the methods of payment on acquirers’performance. The results show that:(1) Compared with the unfinancially constrainted acquirers, the financial constrained ones are more likely to use stock payment;(2) Using stock payment can obtain the significantly positive cumulative abnormal returns, and significantly greater than cash payment;(3) Further test of the subsamples according to the financial constraint grouping, the results show that this conclusion is only established among the constrained acquirers, and abnormal returns is not significant different between stock and cash payments in unconstrained ones. This conclusion means that financial constrainted companies do not follow the pecking order theory, and choosing stock offer is rational that retained limited cash resources could achieve investment opportunities and keep financing flexibility after mergers and acquisitions.Based on the relevant research achievements, this paper has made some innovations in the following aspects:Firstly, although the research about the financial constraint’s effect on corporate investment and cash holding policy has a long history, but only recently academics have putted financial constraint into the payment method and M&A performance study framework. Therefore, selected topic is relatively new. Secondly, using the comprehensive index constructed by the Logit regression model to measure the financial constraint can avoid the deviation on research results of a single indicator or direct use of the existing index. Third, this paper use the whole sample to test the direct impact of payment methods on the acquirer’s performance, but also test the difference in acquirer’s performance in both constrained and unconstrained subsamples, to test whether financial constraint could further strengthen the effect of payment methods on M&A performance, refining the study and making it more deepen.