Cash Payout and Long Run Performance of Mergers

For a large sample of mergers and acquisitions announced between 1978 and 2007, we explore how the magnitude of cash paid in mergers and acquisitions affects acquirer long-run abnormal returns over the three-years after deal completion. We find that the magnitude of cash payout is positively associated with the long run abnormal returns. This relation holds even after controlling for various deal and firm characteristics, such as acquirer size, relative size, deal attitude, and stock payment. The evidence indicates that the market at the announcement period under-reacts to the information contained in the magnitude of cash payout in mergers and acquisitions