Merger Means of Payment and Analyst Recommendation Change

In merger and acquisition (M&A), we find strong evidence that within a 90 day window of a deal announcement date, analysts are more likely to upgrade their recommendations over the acquirer stocks in deals with cash only payment compared to deals with pure stock payment. To disentangle the means of payment impact on the short term abnormal return of acquirer stocks from other impacts, we performed an event study using a three day window around the deal announcement date and conducted an instrumental variable test. We found a 1.06% (-1.05%) cumulative abnormal return for the acquirer stocks for cash only versus pure stock deals during this time frame. Our findings extend the merger means of payment hypothesis, suggesting cash only deals in the short term will receive more positive upgrades by the analysts for the acquirer stocks compared to pure stock deals. The market reacts to this and results in a difference of cumulative abnormal return for the acquirer stocks