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| Author: | Baker, M. Coval, J. Stein, J.C. |
| Title: | Corporate financing decisions when investors take the path of least resistance |
| Journal: | Journal of Financial Economics
2007 : MAY, VOL. 84:2, p. 266-298 |
| Index terms: | corporate finance decision making investment mergers equities models |
| Language: | eng |
| Abstract: | In this paper, it is argued that inertial behaviour by investors can have significant consequences for corporate financial policy. One implication of investor inertia is that it improves the terms for the acquiring firm in a stock-for-stock merger which under certain conditions leads to a reduction in price pressure and, hence, to cheaper equity financing. A simple model is developed to illustrate the idea. Empirical evidence is presented. |
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