Management Review

›› 2015, Vol. 27 ›› Issue (8): 33-46.

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The Effect of Capital Structure on the Method of Payment in Mergers & Acquisitions——Analysis Based on the Background of China's Capital Market

Zhao Xi1, Sun Shipan1,2   

  1. 1. Department of Management and Economics, Tianjin University, Tianjin 300072;
    2. School of Accounting, Shandong University of Finance and Economics, Jinan 250014
  • Received:2013-06-21 Online:2015-08-30 Published:2015-09-02

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Abstract:

The relationship between capital structure and the method of payment is a core issue in mergers and acquisitions. However, previous studies did not focus on the effect of features of the capital market stage on the relationship between capital structure and methods of payment. In this paper, we research the impact of capital structure on payment methods in the context of china's capital market. The findings show that leverage deficit has a significant impact on the method of payment. That's to say, the higher the leverage deficit, the smaller the possibility of mergers and acquisitions with the cash payment, which is defined as "deficit timing effects" in this paper. The role of leverage deficit on method of payment has a significant difference between market downturn and rising period, which is called "payment timing effect". Finally, we propose some policy implications of these research findings. The conclusions of this paper can contribute to capital structure theory in the field of mergers & acquisitions and payment theory in the emerging and transitional capital markets with Chinese characteristics, and also can improve the scientific level of corporate decision of payment.

Key words: capital structure, mergers and acquisitions, the method of payment