The choice of financing method in European mergers & acquisitions

We study the financing choices in a broad sample of 3864 mergers and acquisitions (M&A) by European bidders of publicly and privately held targets and over the period 1997-2000. Europe is an ideal venue for studying the importance of corporate governance in making M&A financing choices, given the large number of closely held firms. Furthermore, our dataset allows for a wide range of institutional settings and legal and regulatory rules which can impact M&A activity. A model of the M&A financing choice is developed and tested with panel data. The trade off between corporate governance concerns and debt financing constraints is found to have a large bearing on the bidder’s financing choice. Consistent with earlier evidence, we find that other bidder characteristics such as deal and target characteristics significantly affect the choice of M&A payment method.