Events

Prof. Liyan Yang
Professor of Finance and
Peter L. Mitchelson/SIT Investment Associates Foundation Chair in Investment Strategy
Rotman School of Management
University of Toronto

We document that all-cash M&A deals are substantially more likely to be withdrawn than non-all-cash deals (mixed-pay or all-stock) and that withdrawal decisions are more sensitive to announcement-period acquirer returns when financing is all-cash. Motivated by these stylized facts, we develop a model in which managers learn about deal synergies from post-announcement prices, with the payment method shaping the informativeness of this feedback. Under equity financing, a decline in the acquirer’s stock price both signals lower expected synergies and reduces the effective purchase price; by contrast, the cost of an all-cash deal is non-contingent. This asymmetry raises the continuation threshold for cash deals and hence increases withdrawals when beliefs deteriorate. Moreover, because price precision declines with the equity share, cash financing induces more informative prices, enabling managers to identify and terminate low-synergy deals more effectively.