Working Paper No. 1157

Misvaluation and Financial Constraints: Method of Payment and Buyer Identity in Mergers & Acquisitions

Published: March 15, 2017Pages: 32Keywords: Mergers and acquisitions; Investments; Asymmetric information; Stock misvaluation; Financial frictionsJEL-codes: D82; G32; G34

Misvaluation and Financial Constraints: Method of Payment and Buyer Identity in Mergers & Acquisitions Aron Berg


The paper studies how stock price misvaluation and financial frictions affect whether an acquisition occurs between or within industries and whether the acquirer pays in cash or stocks. I set up a model where stock market misvaluation correlates within industries and across industries and assume that managers have private information regarding their own firm and firms similar to it. The model yields predictions regarding which firm acquires which firm, and the method of payment used in transactions.

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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