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The Value of (Stock) Liquidity in the M&A Market

Published online by Cambridge University Press:  19 December 2013

Massimo Massa  and
Moqi Xu
Massimo Massa
Affiliation:
massimo.massa@insead.edu, Finance Department, INSEAD, Boulevard de Constance, 77300 Fontainebleau, France
Moqi Xu
Affiliation:
m.xu1@lse.ac.uk, Finance Department, London School of Economics, Houghton St, WC2A 2AE London, United Kingdom.
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Abstract

We study the value of stock liquidity in the market for corporate control and show that the target firm’s liquidity has an impact on the transaction itself and on the resulting merged entity. We use a sample of U.S. merger and acquisition (M&A) transactions (1987–2007) to show that acquiring a more liquid firm makes the stock of the acquirer more liquid. This has consequences for M&A activity and pricing. Public acquirers are more likely than private acquirers to acquire more liquid targets. Liquidity also translates into a greater likelihood of completing the deal and higher compensation for the target.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 5 , October 2013 , pp. 1463 - 1497
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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