| Summary: | This research studies the mergers and acquisitions of publically listed bidder’s in the UK between the
periods of 2001-2004. The study explores the various factors on which the bidder decides on the
sources of financing the M&A. It explains the difference between the means of payment and the
sources of financing. A widespread hand-collected dataset is used to see that the financing decision
of the bidder is affected by the bidder/target and the deal features. The research uses univariate and
multivariate analysis (tobit , logit , multinomial logit) to test the pecking order model, choice of
financing for the growing firms and the importance of the value of the deal and bidder/target
characteristics. firstly, if the information of the target is unavailable or if the target is large, then
equity financing is preferred over cash and debt financing else cash/debt financing is used. Secondly,
the analysis show that as per the pecking order model and the bidder’s favour to use internal cash
financing first, which is also constant with the existing literature. Thirdly, the growing or developing
firms usually prefer equity financing over other sources which is strongly revealed in the results.
Finally, the results also show that various characteristics like the industry of target, form of
acquisition, tender offer, hostile takeover and the target’s public status, all affect the bidder’s
financing decision.
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