Liquid Stock as an Acquisition Currency (CEIBS Working Paper, No. 018/2020/FIN, 2020)

• Dass, Nishant 
• Huang, Sheng 
• Maharjan, Johan 
• Nanda, Vikram 

Abstract

We　examine　how　stock　liquidity　affects　acquisitions.　We　hypothesize　that　liquidity　enhances　acquirer
stock　as　an　acquisition　currency,　especially　when　the　target　is　relatively　less　liquid.　As　hypothesized,
more　liquid　firms　are　more　likely　to　make　acquisitions　and　the　difference　in　stock　liquidity　between
acquirer　and　target　firms　increases　payment　with　stock,　reduces　acquisition　premiums,　and　improves
acquirer　announcement　returns　in　equity　deals.　To　exploit　benefits　of　liquidity,　firms　take　steps　to
improve　stock　liquidity　prior　to　stock　acquisitions.　Our　empirical　identification　relies　on　policy
initiatives　that　exogenously　increase　stock　liquidity.

Keyword

• Decimalization
• Mergers and Acquisitions
• Stock Liquidity

Author Community

[Dass, Nishant] Georgia Institute of Technology

[Huang, Sheng] China Europe International Business School (CEIBS)

[Maharjan, Johan] Rensselaer Polytechnic Institute

[Nanda, Vikram] University of Texas at Dallas

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