Debt and Equity Market Development as Determinant of Source of Financing and Method of Payment in M&A

Sammanfattning: In this paper we extend current research on capital market development, source of financing and the method of payment in mergers and acquisitions. By comparing the relative development between debt and equity markets we examine acquirers' consideration of the relative cost between the two markets. We show that in markets where the debt market is relatively more developed compared to the equity market, acquiring firms are more likely to use debt than equity as source of financing and vice versa. We also document a connection between acquiring firms' choice of source of financing and method of payment.