Does corporate liquidity affect the M&A decisions and methods of payment? Evidence in ASEAN listed firms

Abstract

Using a probit model and data of 743 merger and acquisition deals of ASEAN listed firms over the period 2007 to 2017; this research studies the extent that liquidity impacts firms' cash capacity in corporate investing decisions. We examine whether high liquidity firms decide to join a merger and acquisition’s bidding process and whether it affects their choice of payment method. We observe that high liquidity firms have managed their excess cash well through investments, and the probability of being M&A bidders is high. We found that high growth firms are likely to use cash payments in acquisitions. This more strongly affects financially constrained bidders, who face greater opportunity costs in holding cash. Keywords— M&As, method of payment, liquidity, financing, capital structure