Industrial Marketing Management 97 (2021) 97–114

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Industrial Marketing Management

journal homepage: www.elsevier.com/locate/indmarman

Research paper

Payment choice of M&As: Financial crisis and social innovation

Rama Prasad Kanungo
Newcastle University London, 102 Middlesex Street, London E1 7EZ, United Kingdom

A R T I C L E I N F O A B S T R A C T

Keywords: The payment choice of mergers and acquisitions (M&As) influences firm performance and facilitates wealth
Mergers and acquisitions (M&As) transfer to shareholders and realises synergy through stakeholders' implicit contract. This study examines the
Payment methods choice of payment methods and firm-level characteristics of UK M&As during the financial crisis referring to the
Financial crisis
business-to-business (B2B) market in a broader sense. Further, conceptualising social innovation as a process-
Business-to-business (B2B) market
Social innovation
outcome-value construct, this study evaluates the choice of payment methods and firm-level characteristics of
Corporate social responsibility (CSR) M&As through the lens of corporate social responsibility (CSR). The findings suggest that a stock payment
method is favoured well over a cash payment method by the acquirers of M&A firms and firms that are pursuing
social innovation through CSR activities. The results further document that a volatile market affected by the
financial crisis reacts to the financing choice of M&As, making a sizable impact on firms' capital structure,
ownership concentration, and asymmetric information. Acquiring firms that opt for stock payment methods
register a significant increase in their firm-level characteristics, such as market-to-book-value, deal value,
growth, and CARs compared to the cash payment method deals.

1. Introduction activity, i.e., changes in customer relationship (Kato & Schoenberg,

2014), marketing synergies (Rao, Yu, & Umashankar, 2016), sales-
A sizable decline in mergers and acquisitions (M&As) activity was channel integration (Palmatier, Miao, & Fang, 2007), business behav­
witnessed during the adverse market conditions of the 2007–10 finan­ iour (Chun & Davies, 2010), transactional practice (Öberg, Henneberg,
cial crises. As such, synergies and value arising from M&As contribute to & Mouzas, 2007) and intrinsic demand of goods and services (Weber &
marketing integration (Rahman & Lambkin, 2015), sales channels and Dholakia, 2000) are therefore of key importance to firms, that undertake
brand alignment (Lee, Lee, & Wu, 2011) and the process of social M&As in the B2B market. In addition, M&As are B2B market drivers
innovation through corporate social responsibility (CSR) (Rexhepi, offering a varying degree of value to the firms (Lambkin & Muzellec,
Kurtishi, & Bexheti, 2013), service reorientation and process internal­ 2010). Particularly, M&As can improve the business relationship be­
isation (Chen, Chen, & Chen, 2018). The adverse market conditions tween the partners in the B2B market (Öberg et al., 2007).
restricted M&As to realise the expectations conventionally anticipated Some of the acquirers actively pursue social innovation through
from the deals, i.e., shared value and goals (Bahadir, Bharadwaj, & organisational consolidation (Mulgan, 2012; Swaminathan, Murshed, &
Srivastava, 2008), innovation and complementarity of resources Hulland, 2008). Although, what is social innovation, per se, remains
(Rexhepi et al., 2013), enhanced sales and marketing channels (Rahman unclear (Edwards-Schachter & Wallace, 2017), but an increasing num­
& Lambkin, 2015) and financial and operational synergies (Torres de ber of firms opt for activities that accrue value to society by providing
Oliveira, Sahasranamam, Figueira, & Paul, 2020). Declining market novel solutions to societal challenges (Foroudi, Akarsu, Marvi, &
conditions also caused business disruptions onsetting uncertainty in the Balakrishnan, 2020). Adopting the practices of corporate social re­
business-to-business (B2B) market where the relationships between the sponsibility (CSR) can facilitate the process of social innovation (Cri­
market participants became affected (Oehmen, Locatelli, Wied, & safulli, Dimitriu, & Singh, 2020; Gasparin et al., 2021; Rexhepi et al.,
Willumsen, 2020). M&A studies that focus on the B2B market, refer to 2013). Social innovation theory by and large suggests that firm perfor­
post-merger customer relationships (Kato & Schoenberg, 2014), the mance is likely to improve through CSR practices (Gasparin et al., 2021;
corporate reputation of merged firms (Chun & Davies, 2010) and the Hull & Rothenberg, 2008). CSR and performance of M&A firms are
marketing performance of merged firms (Rahman & Lambkin, 2015). implicitly related through firm-level contract that lead to better sales
Overall, the changes in the market relationship as a result of M&A and marketing integration, improved resource complementarity and

E-mail address: [email protected].

https://doi.org/10.1016/j.indmarman.2021.06.012
Received 29 April 2019; Received in revised form 16 June 2021; Accepted 28 June 2021
Available online 8 July 2021
0019-8501/Crown Copyright © 2021 Published by Elsevier Inc. All rights reserved.
R.P. Kanungo Industrial Marketing Management 97 (2021) 97–114

enhanced stakeholder relationships (Arouri, Gomes, & Pukthuanthong, through market mechanisms, where the value arising from synergy is
2019; Rahman & Lambkin, 2015). channelled through the social and economic process (Bauer, Matzler, &
Performance of M&A firms often depends on the choice of payment Wolf, 2016). In a sense, social innovation is becoming a strategic intent
method undertaken in the deal making (Faccio & Masulis, 2005). for M&A firms that seek better stakeholder relationships (Barney, 2018),
Typically, the determinants of M&A payment decision are reliant on the resource complementarity (Popli, Ladkani, & Gaur, 2017) and synergy
cost of capital, ownership, information asymmetry and agency costs of (Aktas, Bodt, & Cousin, 2011; James, 2002; Prior, 2006). However, not
the merging firms (King, Dalton, Daily, & Covin, 2004; Martynova & much is known about the extent to which socially responsible firms that
Renneboog, 2009), as well as sales and marketing, post-event brand undertake M&As are deciding one method of payment over another
alignment and customer–supplier relationships (Gomes & Marsat, 2018; when the market is severely affected by financial constraints. This study
Lee et al., 2011). Cash and stock options are two widely used methods of clarifies why acquirers of CSR-pursuant M&As prefer a particular
payment, particularly most European M&A deals are involved with method of payment and the underlying reasons behind their preference.
substantial cash financing (Faccio & Masulis, 2005). During the financial M&As substantially affect both the financial market and B2B market
crisis in 2007–2010, subprime lending and mortgage-backed securities (Anderson, Havila, & Salmi, 2001). However, in general, not much is
by the banks contributed to the changes in the capital structure, known regarding the influence of payment methods on the M&As firms
ownership, cost of capital and information asymmetry of firms that and the M&A firms that are engaged in CSR activities to achieve social
substantively affected post-event market expansion, customer–supplier innovation during a financial crisis. Thus, this study examines— what
relationships and brand alignment (Beltratti & Paladino, 2013; Cha­ kind of payment methods improves firm-level performance of acquirers
mow, 2013; Malcolm & Wurgler, 2015). These factors largely affect despite the adverse market conditions?, what is the influence of CSR as a
financial market and events for corporate control like M&As. measure of social innovation on the choice of M&A payment methods
This study contributes to the theory and practice of M&As and M&As during the financial crisis? and does the choice of payment methods in a
for social innovation literature. First, this study empirically evaluates financially distressed market carry business significance for acquirers in
the comparative significance of the cash versus stock payment methods the B2B market?
during the financial crisis for a sample of M&A firms and M&A firms The remainder of the paper is organised as follows. Section 2 dis­
pursuing CSR activities using an aggregate economic and market indi­ cusses the related literature. Section 3 describes data and methods.
cator i.e., the Financial Stress Index (FSI). The FSI comprises three Section 4 documents empirical results. Sections 5 and 6 include dis­
banking system indices, three security market indices and one foreign cussion and limitations of the study.
exchange market index, and documents that the stock payment method
is well-preferred over a cash payment method for the acquirers of the 2. Related literature
firms undertaken M&As during the financial crisis. Although cash pay­
ments signal higher target valuation, and they are associated with better The choice of payment methods while undertaking M&As is sur­
acquisition premiums (Chen, Chou, & Lee, 2011; Gomes & Marsat, rounded by several inconsistent and competing perspectives with
2018), but firms in a financially constrained market respond differently. differing results (Fullers, Netter, & Stegemoller, 2002; Kang & Kim,
Contrary to the fact that the higher valuation and deal premium opti­ 2008). These competing perspectives lead to ambiguity concerning the
mise the announcement returns of the M&A firms, acquirers tend to opt successful outcome of M&A deals, and they can distort the role of pay­
for stock payment method because of the market conditions. This might ment choice, particularly during a period of financial distress. M&As are
be because they suspect their post-event partnership in the B2B market often undertaken to create shared value that delivers anticipated growth
may decline if their cash holdings are used to finance the M&A deals. through sales and marketing integration, brand alignment and product
The post-event market performance of firms strongly affects their line renewal, therefore, M&As create both value and opportunities for
resource complementarity, and facilitates cost distribution (Homburg & the B2B market (Rahman & Lambkin, 2015). M&As reorient firms'
Bucerius, 2005). From a practitioner's point of view, M&As create con­ image, thus, business customers review their business decisions based on
fidence in their B2B partners, offering market benefits like increased the value they recognise with the new entities after the event is
scale of products and services, resource reallocation, resource innova­ completed (Aspara & Tikkanen, 2008; Bahadir et al., 2008; Lambkin &
tion and wider marketing–sales distribution channels (Swaminathan Muzellec, 2010). Further, M&A events can be triggered by economic
et al., 2008). Thus, findings of this study have material significance for shocks (Sudarsanam, 2003). As such, the economic drivers in the B2B
the practitioners in the merger market. market influence M&A strategy across firms (Richey Jr. et al., 2008).
Second, from a theoretical perspective, this study examines financial M&As consolidate firms, enabling a higher degree positive relationship
report items and several firm-level characteristics, i.e., market-to-book- between the business partners in the B2B market (Kato & Schoenberg,
value, ownership, deal value, growth, and CARs of M&A firms engaged 2014). Since the financial crisis distressed the wider market conditions,
in stock and cash payment methods to explore when a particular pay­ the interaction between business partners in the B2B market was
ment method is considered and the extent to which the firms benefit affected (Myria & Simona, 2009 p. 807).
from this decision. These firm characteristics substantially influence This study underpins two key theories, i.e., the resource-based view
various stakeholders of the firms related to the sales force (Bommaraju, (RBV) (Barney, 2018; Medrano & Olarte-Pascual, 2016) and the rela­
Ahearne, Hall, Tirunillai, & Lam, 2018), marketing department (Hom­ tional view (Dyer & Singh, 1998; Gnyawali & Charleton, 2018) for
burg & Bucerius, 2005), customers (Papavasileiou, Swain, & Bhatta­ theoretical supports. The complimentary of resources, as suggested by
charya, 2008) and marketing managers (Richey Jr., Kiessling, Tokman, the RBV, is a key function of the B2B market as it improves marketing
& Dalela, 2008). Firms not only attempt to achieve post-merger inno­ integration, sales channels, brand alignment (Gnyawali & Charleton,
vation through synergy (Rao et al., 2016), but they also reorient their 2018) and the process of social innovation (Silva, Khan, Vorley, & Zeng,
market position to harness improved relationships between the stake­ 2020). The relational view outlines how inter-organisational connec­
holders in the B2B market which supports both the resource-based tions can enhance firm performance in the B2B market by increasing
theory and relational view found in the literature. This study identifies shareholder value through wider engagement with stakeholders (Dyer &
firm-level characteristics that influence method of payment of acquirers Singh, 1998; Prior, 2006; Tarnovskaya, 2015). Despite their theoretical
and explains the extent to which M&A deals affect the B2B market in a differences, both theories, in a broader sense, refer to resource
broader sense. complementarity and well-ordered stakeholder relationships with their
Third, employing a panel of M&A firms that are pursuing CSR as partners (Barney, 2018). Besides working collaboratively during a vol­
their social innovation mandate, the current study evaluates their choice atile and sensitive market; resource complementarity remains a key
of payment methods and firm-level characteristics. M&As create value feature of the B2B market (Medrano & Olarte-Pascual, 2016). Among

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other motives, resource complimentary and stakeholder relations are of In specific, direct exposure to sub-prime loan, toxic assets (Berger &
significant interest to M&A deal-making as they optimise the marketing Bouwman, 2011) and declining wholesale financing and marketing
value of the firms (Popli et al., 2017), improve sales channels (James, (Conti, Dass, Lorenzo, & Graham, 2019) resulted in the financial crisis.
2002) and renew the brand alignment of the M&A firms (Barney, 2018; Excessive reliance on funding from the banking system and asset bubbles
Das & Teng, 2000; Lambkin & Muzellec, 2010). in the residual property market affected the economic system leading to
A parallel body focused on M&A literature examines the impact of the financial crisis and considerably affected the capital as well B2B
payment choice on marketing and sales task integration (Palmatier market (Merrouche & Nier, 2010). Firms engaged in M&As faced
et al., 2007), brand alignment (Lambkin & Muzellec, 2010), innovation extended challenges during the financial crisis to achieve synergy and
(Zhou, Xie, & Wang, 2016), the acquirer's bargaining power with its anticipated growth through resource complementarity (Conti et al.,
employees' union (Chen et al., 2018), long-run post-event performance 2019; Gummesson, 2014). Both resource complementarity and synergy
and resultant wealth transfer (Andrade, Mark, & Stafford, 2001; are central to M&As under the RBV and relational view theories (Barney,
Asquith, Bruner, & Mullins, 1990; Servaes, 1991). The choice of pay­ 2018; Das & Teng, 2000; Popli et al., 2017; Prior, 2006). During the
ment, i.e., cash, stock or mixed/hybrid methods used in mergers and crisis, many firms embarked on irrational investments, negative NPV
acquisitions (M&As) largely influences the success of M&A transactions expansions and gearing based financing, adversely affecting their mar­
based on capital structure (Kohtamäki & Rajala, 2016), ownership (Oh, ket position and synergy (Berger & Bouwman, 2011; Conti et al., 2019).
Peters, & Johnston, 2014), asymmetric information (Bahadir, Bhar­ In particular, the rational choice of undertaking market deals, like
adwaj, & Srivastava, 2008; Fishman, 1989; Stulz, 1988; Hansen, 1987), M&As, was triggered mainly to offset the potential downside of the
and the competitive bidding strategy of firms (Lambkin & Muzellec, financial crisis (OECD, 2011). However, market friction led to liquidity
2010) in general, and it applies equally to M&A deals undertaken in the constraints and limited R&D development (Ivashina & Scharfstein,
B2B market. That is, the choice of payment method substantially in­ 2010), reduction in innovation (Filippetti & Archibugi, 2011),
fluences acquirers' investment opportunity (Boateng & Bi, 2013; Martin, contraction in the sales channel, and disruption in customer and supplier
1996), innovation (Cho & Ahn, 2017), business partnerships, marketing, relationship (Hud & Hussinger, 2015). Prior studies have paid marginal
sales and brand alignment (Cornu & Isakov, 2000; Swieringa & attention to resource complementarity and synergy related to post-event
Schauten, 2008). market performance (Rahman & Lambkin, 2015). M&As, typically, go
Undertaking a M&A decision and liquidity constraints are emblem­ beyond mere consolidation and market performance to achieve growth
atic issues when an acquirer, either in the financial markets or the B2B and expansion for the firms to generate synergy and complement
market, is constrained by cash and needs to decide what form of pay­ resource allocation (Maney, Hamm, & O'Brien, 2011; Oh et al., 2014).
ment, i.e., cash or stock or hybrid is a preferred form of payment to M&As also constitute rapid and often substantial changes in market
complete the deal (Gorbenko & Malenko, 2018). While considering an characteristics. Therefore, they represent a managerial challenge con­
M&A deal, firms evaluate their cash position and their ability to raise cerning routine and long-held views about how the business network
their cash reserves, so they can achieve higher post-event portfolio operates in practice in the B2B market (Kohtamäki & Rajala, 2016;
performance, market expansion, marketing–sales channel improvement Öberg et al., 2007). The financial crisis disrupted the traditional flow of
and brand alignment (Faccio & Masulis, 2005; Harford, 1999; Rappa­ business and market networks, leading to greater information asym­
port & Sirower, 1999). Particularly, the pay-off received by the acquirer metry that affected both the wider market and the B2B market (Beltratti
and synergies arising from the deal are positively related to cash- & Paladino, 2013; Conti et al., 2019; Oehmen et al., 2020). During the
payment deals (Gorbenko & Malenko, 2018). On the other hand, stock financial crisis, growth and expansion anticipated from M&As became
payment methods mitigate the liquidity issue of M&A firms by cir­ severely limited because of constrained market conditions, particularly
cumventing the issue of cash depleted position but incur the cost of in B2B financial services (Theron, Terblanche, & Boshoff, 2013). Market
customer-supplier relationship, sales task and new entity brand align­ constraints restricted fund mobility, and that affected the B2B market
ment, particularly, if the deal is set in the B2B market (Gorbenko & relationship. Many bankruptcies occurred where banks were no longer
Malenko, 2018; Oh et al., 2014). As such, under normal market condi­ able to finance their differences in lending and deposits, resulting in a
tions, a stock payment method is usually less favoured than a cash frozen interbank market (Ellemose, 2009). When the lending and the
payment method because of information asymmetry and valuation un­ spread of risk became greater than expected returns, the financial in­
certainty associated with the capital structure of the firms (Fuller, termediaries like banks started collapsing under huge servicing costs
Netter, & Stegemoller, 2002). Besides, the cost of holding cash, when (Adrian & Shin, 2008). This affected business partnerships in the B2B
firms have higher growth opportunity, can compromise the prospect of market, which relied on the financial positions of the M&A partners
net present value (NPV) projects related to the firms' financial (Manocha (Theron et al., 2013). At the same time, investors began taking
& Srai, 2020; Yang, Guariglia, & Guo, 2019), marketing and sales di­ increasingly higher risks, unaware of the ramifications of a risk-return
visions (Lee et al., 2011). While facing financial frictions under the trade-off and the possibility of wider macro-economic shocks (Kodres,
constrained market conditions, firms are more driven to save their cash 2008). The macro-economic shocks, developed by economic, political
holdings or use retained earnings rather than raise costly debt or issue and technological shifts because of the crisis, impacted the resources and
stock to fund an M&A deal (Faulkender & Wang, 2006). In particular, innovation of firms (Sudarsanam, 2003). Since such impacts have
higher cash holdings considerably increase a firm's opportunity of un­ several restrictive consequences, firms attempted to retain profit and
dertaking an M&A (Erel, Jang, Minton, & Weisbach, 2019). In addition, sustain liquidity to maintain real growth opportunities so they could
higher cash holdings allow firms to pursue CSR activities as part of their continue trading in the market. Particularly, to maintain their market
social innovation mandate through shared value (Mulgan, 2012; Silva position (Öberg et al., 2007) and relative market share (Rahman &
et al., 2020). Thus, the payment choice of M&As has an implicit effect Lambkin, 2015) and to preserve customer–supplier networks in the B2B
not only on the B2B market but also on firms pursuing social innovation markets (Kato & Schoenberg, 2014), firms opted growth through M&As.
(Manocha & Srai, 2020). Besides, shareholder control became less tight due to relatively larger
debt servicing and risk-taking. When shareholder control became weak,
2.1. Financial crisis and M&A financing overvalued acquirers tried to swap their expensive equity with the
relatively less expensive equity of the target firms through stock pay­
The 2007–2010 financial crisis emerged primarily from subprime ment method (Shleifer & Vishny, 2003).
lending, securitised financial instruments, excessive marketing cam­ Several theories, i.e., resource-based theory (Das & Teng, 2000;
paigns, overvalued sales promises, asset-backed securities, wholesale James, 2002; Popli et al., 2017), relational-monitoring theory (Bergh
and short-term funding and hazardous risk undertakings (ECEF, 2011). et al., 2016; Dalton & Dalton, 2011; Goranova, Priem, Ndofor, & Trahms,

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2017), free cash flow (Kim & Bettis, 2014; Décamps, Mariotti, Rochett, & financing, so the shareholders of the target firms share the risk of
Villeneuve, 2011; Opler & Titman, 1993; Jensen, 1986), risk-sharing revaluation with the acquiring firms (Hansen, 1987; Martin, 1996).
theory (Chatterjee & Lubatkin, 1990; Martin, 1996), signaling theory Typically, a financially distressed market is less information efficient,
(Agrawal, Jaffe & Mandelker, 1992; Travlos & Waegelein, 1992; thus, acquirers have a sub-optimal choice and limited sources to deter­
Stoughton, 1988) are advanced to explain the underlying reasons of mine the value of targets and pre-assess resource compatibility. They,
observed wealth effects and performance of firms following M&A events. therefore, settle for stock payment method to circumvent excess risk-
However, event-induced resource complementarity and synergy arising bearing and speculative resource alignment. In general, the risk is crit­
from such transactions differ across the studies and remain inconsistent ical to the B2B market (Sutton, Khazanchi, Hampton, & Arnold, 2008),
(Fuller et al., 2002; Kang & Kim, 2008; Leland & Pyle, 1977; Mandelker, and it is significant from stakeholders' relational perspective while un­
1974; Myers & Majluf, 1984). With substantial evidence from prior dertaking an M&A (Khazanchi & Vipin, 2016). Both theories explain how
studies, the choice of payment methods of M&As suggests that the asymmetric information transmits to the market by affecting the deal
acquirers' return continuation, resource complementarity and synergy value of M&As and can potentially affect social innovation due to issues
typically depend on the medium or choice of payment (Conn, Cosh, Guest, associated with liquidity and risk during the financial crisis. However,
& Hughes, 2005; Draper & Paudyal, 2006). Further, a less dynamic firms with the potential of achieving synergy and having major share­
market influenced the functionality of the capital market and market holding, opt for cash payment methods through debt financing to
channels (Balakrishnan, Danninger, Elekdag, & Tytell, 2011), sales (Pal­ maintain a higher level of management ownership and voting power,
matier et al., 2007), brands (Oh et al., 2014) and portfolios of firms despite asymmetric information (Stulz, 1988).
(Bahadir et al., 2008), therefore, adversely impacted M&As and social
value-creation through merger activities. Liquidity constraints created a 2.2. Capital structure, ownership and information asymmetry
less dynamic capital market because of limited movement of funds and
availability of cash by restricting the business partners' ability to negotiate The financial crisis, despite its adverse effects on the market, offered
a better deal in the B2B market (Berger & Bouwman, 2009). Hence, cash opportunities for financially sound firms to improve their portfolio
financing through debt instruments became increasingly difficult for firms diversification, risk sharing, marketing-sales channel improvement and
that sought to undertake M&A deals. Conversely, the stock payment liquidity through M&As by balancing the cost of capital, reorganising
method, which relies heavily on market conditions, was unlikely to create ownership and limiting the information asymmetry (Botiş, 2013).
resource complementarity and synergy for the M&A firms. Although the financial crisis is seen as an adverse event for market dy­
Under normal market conditions, the success and failure of M&As are namics, but it offered strategic opportunities for B2B firms to realign
largely explained by the relational view (Goranova et al., 2017; Popli their sales, marketing and portfolio structure, as a matter of correction
et al., 2017) and signaling view theories (Bergh et al., 2016; Agrawal (Theron et al., 2013). The cost of capital, along with the ownership of
et al., 2002). During the M&A announcement period, information is time- firms, was affected a great deal during this financial crisis. Particularly,
varying, and all parties do not have the same information at the same time for firms engaged with M&A deals and those are led by CSR activities
(Spence, 2002). Therefore, overvalued stocks become a tempting choice experienced difficulties to maintain their ownership concentration and
for the acquirers as the acquirers are not well-informed of the real value of reduce the cost of capital (Conti et al., 2019; Gomes & Marsat, 2018;
the targets' stocks. The cash option, thus, becomes a preferred method for Gummesson, 2014; Rexhepi et al., 2013). Firms, in turn, expected
acquirers, particularly for the B2B market (Schneider, Schultz, McCrim­ accrual cash flow from the reduced cost of capital, the complementarity
lisk, Hulsing, & Nash, 2018). However, the cash financing became less of resources and increased voting power from consolidated ownership
relevant during the financial crisis, as the stock market turned out to be (Chen et al., 2018). Thus, M&As were undertaken by financially stable
stagnant and stocks were not overvalued. Therefore, the rational choice of firms to optimise their market position and to improve their advantage
undertaking an M&A deal through cash financing became less attractive so that their relationships with business partners in the B2B market
for the acquirers during the crisis. Particularly, for acquirers in the B2B could potentially enhance the prospect of future sales (Kato & Schoen­
market, as half of the M&As take place in the B2B market (Schneider, berg, 2014), supply-chain integration (Chun & Davies, 2010) and rev­
Schultz, McCrimlisk, Hulsing, & Nash, 2018). enue channels (Rao et al., 2016). As such, the prospect of future sales
The investment opportunity theory, which complements the RBV and supply-chain integration of merged entities are meticulously scru­
(Hansen, 1987; Leland & Pyle, 1977) and risk-sharing theory (Martin, tinised by the business partners in the B2B market after M&As are
1996), explains cash and stock payment methods, respectively. The in­ completed (Kato & Schoenberg, 2014; Lee et al., 2011).
vestment opportunities of M&As are associated with the cost of capital as
well as the cost of resource complementarity indicating higher cost re­ 2.2.1. Capital structure
stricts M&A-related opportunities (Wang, 2008). If a deal is financed by The choice of payment methods fundamentally affects the firm-level
cash that is leveraged, i.e., funded by borrowing, the opportunity for the characteristics of firms engaged in M&A deals. The acquirers' cost of
M&A firms will decrease, since the acquirers will service the debt by capital is lower after such deals. This enables the capital structure to
paying the interests that adversely affects the financial, marketing and accommodate more debt or issue more equity to raise funds to finance the
sales functions of the firms. Simultaneously, firms pursuing social inno­ deal, so post-event synergy is achieved (Hovakimian, Opler, & Titman,
vation through CSR activities will be constrained to continue their social 2001; Martynova & Renneboog, 2009). The need to retain corporate
innovation mandate because of the excessive rent of borrowing. Firms control to manage the capital structure of M&A firms mostly incentivises
with a better investment opportunity and resource complementarity shareholders to decide which payment method is appropriate for a given
often hesitate to issue debt compared to firms with relatively weaker M&A deal (Martynova & Renneboog, 2009). In turn, control of the
investment opportunities (Myers, 1977). Further, debt-issuance affects capital structure helps to improve stakeholder relationships (Goranova
resource complementarity and real growth opportunity for M&A firms in et al., 2017), customer–supplier relationships and branding alignment
a period of financial distress (Beltratti & Paladino, 2013; Conti et al., (Lee et al., 2011) because shareholders have more control and more
2019). This has substantive implications for the B2B market, as the monitoring power. Besides, higher control influences the deal premium,
stakeholders of the acquiring firms expect cost reduction to maintain and releases required fund to service the borrowing cost of M&A firms
their downstream value chain for the outbound supply chain and mar­ pursuing CSR for the purpose of social innovation (Gomes & Marsat,
keting operation after the event is completed (Lee et al., 2011; Oh et al., 2018). However, the acquirer's shareholding relative to the capital
2014). Risk-sharing relates to the asymmetric information between the structure is not related to the method of payment for UK deals (Zhang,
acquiring and target firms (Hansen, 1987; Myers & Majluf, 1984). When 2003). However, Zhang's study is based on normal market conditions,
the acquiring firms are uncertain of the targets' value, they opt for stock unlike the current study. Thus, it is highly likely that shareholders may

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have acted differently in a crisis period to maintain wider stakeholder created financing constraints for the acquirer's equity capitalisation
relationships and the firm's position in the B2B market. (Beltratti & Paladino, 2013). Reduced equity capitalisation depletes
The investment opportunities and stakeholder relationships of the firms of cash, resulting in limited effort at social innovation (Chen &
acquirers are the two most defining characteristics of payment choice Gavious, 2015; Rexhepi et al., 2013). Major shareholders usually avoid
(Martin, 1996). The acquirer's capital structure, corporate control and stock financing, since it diminishes their corporate control, lead to fewer
deal characteristics can explain up to 23% of the cross-sectional vari­ dividends, and invite higher agency cost affecting their relationships
ability in decisions about M&A payments (Faccio & Masulis, 2005). with stakeholders and reducing customer value (Jung, Kim, & Stulz,
Martynova & Renneboog, 2009 explain different motives for such choices. 1996; Stulz, 1988). Moreover, higher asset tangibility mitigates mana­
They state that the means of payment influence the capital structure gerial friction by increasing ownership control and reducing monitoring
(Faccio & Masulis, 2005), marketing–sales channels (Lee et al., 2011), cost of firms, facilitating resource complementarity and synergy for
branding and customer–supplier relationships (Rahman & Lambkin, business partners through marketing–sales channels, customer–supplier
2015) of the M&A firms. The cost of capital is one of the most significant relationships and brand alignment (Margaritis & Psillaki, 2010). At the
determinants in the financing decision and resource complementarity of same time, the higher tangibility of assets can also be helpful for firms
M&As (García-Feijóo, Madura, & Ngo, 2012). When access to capital is during a period of financial distress, as business partners view higher
sufficient and stakeholder's relationship, marketing, sales and customer tangibility of assets positively (Booth, Aivazian, Demirguc-Kunt, &
engagement are very likely to improve, the firms tend to use cash as a Maksimovic, 2001). Acquirers who have more tangible assets than the
method of payment. However, when capital is limited and resource targets can take on more debt and use cash to finance M&A deals. The
alignment is highly likely, firms are more inclined to finance a deal with acquirers who have stronger ownership control usually prefer to swap
stocks (Faccio & Masulis, 2005; Martynova & Renneboog, 2009). their stock with the relatively less expensive stock of target firms which
In the B2B market, the choice of cash is more attractive for the is valued higher after a bid, creating higher-order marketing and sales
acquirers. This is because the cost of equity increases relative to the cost task (Shleifer & Vishny, 2003; Oh et al., 2014) . However, during a
of debt, and business partners gain better value through upstream value- sensitive financial time, the preference to swap stock can be risky and
chain improvement (García-Feijóo et al., 2012). The cost of external irrational for acquirers, particularly because swapping stocks in the B2B
financing increases if imperfections in the capital market generate market leads to constrained growth and weaker customer relationships
financing frictions by reducing the negotiating power of the business (Kohtamäki & Rajala, 2016; O'Cass & Ngo, 2012). Moreover, swapping
partners (Kohtamäki & Rajala, 2016; O'Cass & Ngo, 2012). Sperling stock might not incentivise the acquirers for two reasons. First, the
(2010) provides empirical evidence of a significant interaction between targets' tax advantage is not very effective during a financial crisis
stock-financed deals and cash richness. Besides, the capital structure of (Deesomsak, Paudyal, & Pescetto, 2009), so it might not yield potential
financially constrained firms is affected by their method of payment business value for the B2B partners of the acquirers. Second, the market
(Alshwer, Sibilkov, & Zaiats, 2011). However, the constrained firms can may undervalue a stock because of larger economic shocks (Yao & Luo,
reserve their internal resources, i.e., retained cash alongside tangible 2009); even though, in reality, the stock is not actually undervalued.
assets to reduce future financing issues and not compromise their CSR
activities to cut down the cost of social innovation (Silva et al., 2020; 2.2.3. Information asymmetry
Chen & Gavious, 2015). Despite several studies and theoretical explanations, it remains
difficult to detect a singular pattern of the wealth effect and market
2.2.2. Ownership growth related to the choice of payment methods of M&A events
Ownership concentration represents closely held shares by the firms. (Anderson et al., 2001; Cartwright, Teerikangas, Rouzies, & Wilson-
A higher degree of ownership concentration improves firms' perfor­ Evered, 2012; Leland & Pyle, 1977; Martin, 1996; Moore, 1980).
mance through business channels (Pursey, Essen, & Oosterhout, 2009; Under the condition of information asymmetry, cash payment conveys a
Wang & Shailer, 2015). In particular, higher ownership concentration positive signal to the market, but stock payment bears a negative impact
reduces managerial opportunism by controlling management's inter­ on acquirers' valuation when it is a public B2B deal (Amihud et al., 1990;
vention in financing an M&A deal. Also, the choice of payment is Leland & Pyle, 1977; Myers & Majluf, 1984; Travlos, 1987). Acquirers
influenced by ownership concentration since the cost of capital for firms gain negative average cumulative abnormal returns surrounding the
engaged in M&A affects ownership (Faccio & Masulis, 2005; Martynova announcement period when the deal is public (Conn et al., 2005; Draper
& Renneboog, 2009). Greater ownership is essential, particularly during & Paudyal, 2006). Information advantage arising from information
a financial downturn, for resource complementarity and to achieve asymmetry effectively favours firms in the B2B market (Berthon, Ewing,
synergy, as it can restrain managerial self-serving interests (Beltratti & Pitt, & Naudé, 2003). However, information asymmetry and stock
Paladino, 2013; Cho & Ahn, 2017; Goranova et al., 2017). The con­ issuance are not positively correlated (Bessler, Drobetz, & Gruniger,
centration of ownership increases with a cash acquisition (Amihud, Lev, 2011). After a decrease in firm-level information asymmetry, firms tend
& Travlos, 1990). Since the reduction of managerial friction is a key to issue more stock to generate cash reserves, so they can improve
motive for M&As, along with preserving business relationships in the supply-chain integration (Bessler et al., 2011; Chun & Davies, 2010;
B2B market, the firms hesitate to undertake cash payment methods and Myers & Majluf, 1984; Spence, 2002). Acquirers are incentivised to
opt for stock payment methods unless they have an easier source of cash. choose stock financing when the information asymmetry about the
So, they can mitigate agency cost (Shleifer & Vishny, 1997) and com­ target is high. This allows them to optimise their market integration
plement resources to enhance their market share, sales and customer through improved customer–supplier relationships after the event
relationships (Das & Teng, 2000). Firms value resource complemen­ (Evans & Laskin, 1994; Hansen, 1987; Kato & Schoenberg, 2014). If a
tarity highly for market integration and enhanced stakeholder re­ stock payment method is undertaken, the stock capitalisation of the
lationships (Bauer, Rothermel, Tarba, Arslan, & Uzelac, 2020). acquirer increases and financial constraints decrease, thus, stakeholders'
However, the probability of stock payment methods decreases if there is value in the B2B market improves (Kohtamäki & Rajala, 2016). Effec­
more institutional block holding in the ownership (Martin, 1996). tively, the larger the firm size, the greater the likelihood that they prefer
Because of the wider market disruption during the financial crisis, in­ cash financing as they have higher information contents (Allahar, 2015).
stitutions became less vigilant about monitoring mechanism despite the Firm size has a significant bearing on merger performance, as larger
higher proportion of shareholding. The ownership of firms that used firms have greater access to information and are better poised for sales
stock payment methods for M&As during the financial crisis might have and branding alignment (Oh et al., 2014). Smaller firms, by contrast, are
paid less attention to corporate control. This, in turn, could have harmed likely to opt for stock financing when they experience information
stakeholder relationships, affected sales and customer engagement and asymmetry. Moreover, larger firms have more tangible assets, which

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give them easy access to debt financing through collateralization (Jen­ movements (Misina & Tkacz, 2009), cyclic financial stress (Hakkio &
sen, 1986). A study by Sperling (2010) shows that the stock payment Keeton, 2009), the relationship between financial stress indices and
methods and cash reserve are positively related. In addition, information trading activities (Melvin & Taylor, 2009), financial crisis in developed
asymmetry associated with M&A financing helps business partners to economies (Cardarelli, Elekdag, & Lall, 2011), transmission channel of
take a positive view about M&A firms' mandate for social innovation stress for developing countries (Balakrishnan et al., 2011), aggregate
(Edwards-Schachter & Wallace, 2017; Myers & Majluf, 1984). stress indicators (Duca & Peltonen, 2011), and systematic risk during the
crisis (Hollo, Manfred, & Duca, 2012). However, because of varying
2.3. Social innovation through CSR and M&A payment choice conceptualisations of the financial crisis and estimation diversity,
deciding on a single reliable measure of financial stress is difficult.
By merging or through committed partnership, firms complement Particularly, different countries have country-specific financial systems
resources and share values to achieve social innovation (De Silva & that do not conform to the homogeneity of financial stress(Niemira &
Wright, 2019; Drumwright, 2014). In this context, the interaction be­ Saaty, 2004) . In addition, aggregate economic shocks do not always
tween business partners enhances their shared values (De Silva & reflect the movement of the affected market (Bianconi, Yoshino, &
Wright, 2019). By merging, both firms harness the benefits of economic Sousa, 2013), and the transmission of shocks differ and cannot be
value and resource complementarity through implicit contract (Arouri treated on an ad hoc basis (Cevik, Dibooglu, & Kutan, 2013).
et al., 2019). The process of social innovation related to M&As charac­ However, the Financial Stress Index (FSI) developed by Illing and Liu
terises multi-level social integration, i.e., environmental and affective (2006) considers financial stress as a measure of wider market condi­
that promotes CSR activities upscaling revenue streams, leading to tions during crises. The FSI contains comprehensive stress measures
better inter-organisational integration, creating value for the merged from the banking sector, sovereign debt, foreign exchange and equity
firms and positioning them as market leaders (Oliveira, Sahasranamam, markets, and it avoids arbitrary boundaries for the beginnings and ends
Figueira, & Paul, 2020). Although social integration is not always a key of crises (Oet, Eiben, Bianco, Gramlich, & Ong, 2013). Moreover, Illing
reason to undertake an M&A, but it is achieved through shared values and Liu (2006) apply aggregate economic weights, i.e., different
and goals of merging firms (Oliveira et al., 2020). Besides the financial spreads, factor analysis components, and cumulative distribution func­
and operational gains from synergy, M&As are typically pursued to tions, making their model comprehensive and parsimonious. The FSI
improve inter-organisational values and goals (Cho & Ahn, 2017; Rah­ model was initially proposed by Illing and Liu (2006) to measure the
man & Lambkin, 2015). Particularly, CSR-driven social innovation often difference of pre-and post-financial crisis periods of capital markets.
determines how business partners in the B2B market assess the outcome However, in line with the original model, the model used in this study is
of an M&A (Arouri et al., 2019). modified to accommodate payment choice as a binary dependent mea­
As such, practising CSR activities can influence the process of social sure. The model is outlined in the model specification section.
innovation (Crisafulli et al., 2020; Gasparin et al., 2021; Rexhepi et al., The choice to use a binary logistic model to test the chosen variables
2013). Further, CSR activities affect the performance of M&A events and is based on the dichotomous nature of the dependent variable, that is,
help improving firm value, cost of capital, and cash reserve of the either a cash or a stock payment method is used to finance M&A deals.
merged firms (Arouri et al., 2019). Particularly, Stakeholders' commit­ As this study explores each category on a set of independent variables,
ment to CSR activities leads to wealth gain for the acquiring firms (Lins, the binary logistic model is deemed to be the most appropriate instru­
Servaes, & Tamayo, 2017). Firms both identify and resolve socio- ment because of its predictive strength (Peng, Lee, & Ingersoll, 2002).
economic problems through resource complementarity and shared Further, binary logistic estimation does not assume covariances and
values (Silva et al., 2020). Thus, resource complementarity is a defining equal variance multivariate normality of the test variables (Lei &
feature of M&A deal-making (Bauer et al., 2020). M&A firms pursuing Koehly, 2003), thus, the independent variables are not constrained by
CSR activities are likely to contribute to social innovation through these statistical conditions that are likely to inflate the parameter
shared values. The choice of payment has a strong influence on shared estimation.
values of a successful M&A deal (Arouri et al., 2019).. This suggests that
the choice of payment can be a determinant for social innovation, 3.1. Data and sample selection
although an implied one. Yet not much is known about how M&A firms
contribute to social innovation through their CSR activities. Three sets of data are utilised in the current study. The first dataset is
generated for the Financial Stress Index (FSI). The model specification
3. Data and methods and variables used in the FSI are discussed in Section 3.1.1. Section 3.1.2
outlines the data source in detail. The second set of data includes the
This study uses a three-tier method. First, a Financial Stress Index financial report items and firm-level characteristic of firms engaged in
(FSI) is specified to examine acquirers' choice of payment methods during M&A deals. This includes 679 deals announced by the acquirers during
the 2007–2010 financial crisis. The description of the main M&As sample the crisis period, 2007–2010. Removing incomplete or lapsed deals,
and the sample of M&A firms pursuing CSR for the purpose of social thinly trading firms, and unaccounted bids, the final data set resulted in
innovation is presented in Table 1. Second, a binary logistic model is 641 completed deals. The final sample includes 265 cash option and 376
estimated for the main sample with a set of financial report items and stock option deals. The third dataset is extracted from the main M&A
firm-level variables to explore the market-based performance of firms. sample using the CSRHub database for the M&A firms that pursue CSR
Third, the same binary logistic model is reiterated to evaluate the sig­ activities. The CSRHub offers CSR ratings on a broad range of firms
nificance of social innovation for the M&A firms pursuing CSR activities. operating across the globe based on four categories and 12 subcategories
Setting the context to examine the payment choice of acquirers during of CSR on a scale of 0 to 100, with 100 being the highest rating.1 The
the financial crisis, both market data and firm-level data are used. As CSRHub has been used extensively in studies of sustainability and CSR
such, a firm's market data and financial report data are closely associated (Ekawiguna & Darmansyah, 2017; Lin, Yip, Ho, & Sambasivan, 2020;
(Gentry & Shen, 2010). Therefore, both market-based secondary data and Thanetsunthorn, 2015). The CSRHub interlinks to Bloomberg ESG
index data are used to elicit robust estimation results (Maddala & Lahiri, Metrics, offering access to CSR data. The sample of acquiring firms
2009, p. 506). This avoids subjective approximation associated with pursuing CSR activities are rated on a scale of 50 and above. The main
assessment of the financial crisis (Niemira & Saaty, 2004).
Prior studies used multi-level market and economic data to measure
the effect of financial stress in the financial system (Hanschel & Monnin, 1
https://esg.csrhub.com/csrhub-ratings-methodology accessed on 21/10/
2005). Several works have examined the impact of credit and asset price 2020.

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Table 1
Sample description.
Panel 1: Sample selection criteria

Activity New FTSE/DJ Industry Classification Benchmark (ICB) (acquirer and target, vendor excluded). UK SIC (acquirer and target, vendor excluded), i.e. 3-digit SIC
code.
Time period January 2007–January 2010.
Geography UK (vendor excluded).
Deal status Only completed deals are included in the sample. Announced, pending (awaiting regulator's approval), pending (awaiting shareholders' approval), pending
(unspecified reason), postponed, rumoured, unconditional, withdrawn deals are excluded.
Methods of Both the cash payment method and stock payment method deals are extracted. Mixed/hybrid payment method deals are excluded since missing and limited
payment availability of data from the primary data source.
Quoted companies All quoted public companies (acquirer), vendor-quoted and unquoted are excluded.
Stock exchange London Stock Exchange (LSE)

Panel 2: Sample size

Total M&A deals initially identified 679

M&A deals deleted because of missing information
Mismatch deal value, equity value, enterprise value/estimated enterprise value (11)
No. of thinly traded firms (08)
Missing announcement/completion dates (17)
Deals deleted as outliersa (02)
Total M&A deals deleted because of missing information (38)
Total identified deals 641

Panel 3: Sample distribution of cash and stock option M&As

Event year M&A deals Yearly total deals

Cash options Stock options

2007 69 73 142
2008 46 104 150
2009 63 103 166
2010 87 96 183
Total 265 376 641

Panel 4: Sample distribution of cash and stock option M&As pursuing CSR activities

Event year M&A deals Yearly total deals

Cash options Stock options

2007 43 51
2008 21 61 94
2009 34 66 82
2010 41 39 100
Total 139 217 80

Note: Panel 1 presents selection criteria of M&A events extracted from database Zephyr provided by Bureau Van Dijk. Panel 2 presents sample size and elimination
process of M&A deals. Panel 3 presents yearly distribution of M&A deals based on payment methods of firms. Similarly, Panel 4 outlines the yearly distribution of M&A
deals pursuing CSR based on payment methods of firms.
a
Outliers are identified as observations with Studentized residuals with an absolute value greater than 3 when included in regression model.

sample description including selection criteria, sample size and distri­ 3.1.1. Financial Stress Index (FSI) data
bution is presented in Table 1. The macroeconomic environment and industry effects significantly
Only all-stock and all-cash financed M&As are examined in this influence the choice of payment methods for M&A deals (García-Feijóo
study, consistent with Faccio and Masulis (2005) and Martynova and et al., 2012). Therefore, to discern the different effects of the two major
Renneboog (2009). However, some of the M&A deals are financed by forms of financing M&A deals during the financial crisis, a Financial
mixed/hybrid instruments, i.e., a combination of cash and stock options Stress Index (FSI) is constructed in line with Illing and Liu (2006).
(Martynova & Renneboog, 2009; Faccio & Masulis, 2005; Ghosh & However, the FSI for this study is modified by replacing the dependent
Ruland, 1998; Martin, 1996; Amihud et al., 1990). The mixed/hybrid pre- and post-financial crisis time period with the cash and stock pay­
payment methods are excluded from this study as a result of several ment methods as the dependent binary variable. Altogether seven
missing values while cross-validating the deals with their annual filing, indices consistent with the original FSI specifications are incorporated
i.e., missing bid or enterprise value, incomplete bids and non- into the FSI model specification, i.e., three banking system indices, three
corresponding target versus acquirers. Besides, only 9% of the total security market indices and one foreign exchange market index are
sample used mixed/hybrid methods during the sample period. combined as a single construct denoting the FSI. The three banking
Furthermore, mixed/hybrid financing is less preferred compared to a indices include the beta, the spread between interbank interest rates and
cash financing choice, since the mixed payment method signals lower the Treasury bills, and direction coefficient of the banking sector per­
valuation of the target by increasing competing bids (Chen et al., 2011). formance curve (a vector of performance curve). The beta is measured as
This, in turn, affects the B2B market and future shareholder relation­ the covariance between the total returns of the banking sector index and
ships between the business partners. Therefore, the mixed/hybrid op­ the capital market index (Illing & Liu, 2006; Jonghe, 2010). The Trea­
tions are excluded from the study. sury bill spread, commonly known as the TED spread, captures the
premium charged by the banks (Eichengreen, Mody, Nedeljkovic, &
Sarno, 2012), which is similar to the UK T-Bill cumulative interest rates.

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A part of the data is extracted from Bankscope provided by the Bureau Table 2
van Dijk (BvD). The other set of data is collected from the UK Central Variable definitions.
Bank database and cross-validated by the FT markets data. The security COLLATERAL Defined as ratio of tangible assets, which is sum total of fixed
market indices include the spreads of corporate bonds, the performance assets and current assets to total assets of M&A firms' year-end
of the capital market and the volatility of the capital market over the value prior to announcement. Source: ORBIS, Bureau Van Dyke
LEVERAGE Stands for the leverage ratio represents the total debt (long-term
sample period. The third component of the FSI – the foreign exchange
debt and short-term debt) divided by book and market value of
market index – measures the volatility of the foreign exchange rate over assets of M&A firms' year-end value prior to announcement.
the sample period (Corte, Sarno, & Tsiakas, 2011). Source: ORBIS, Bureau Van Dyke
Each index is computed for 3 months covering the entire sample EBIT Defined as revenue plus non-operating income minus operating
period and used as a single data point. The mean of each index is expenses of M&A firms' year-end value prior to announcement.
Source: ORBIS, Bureau Van Dyke and Thompson ONE
included in the FSI. The mean for each index is calculated by assigning a
MTBV Denotes ratio of market value of equity plus book value of debt
weighted statistical score to each of the seven indices. The weighted divided by the sum total of book value of equity and book value of
score denotes the inverse of the variance of each respective index. The debt of M&A firms' year-end value prior to announcement.
inversely weighted score tends to linearise the impact of high volatility Source: ORBIS, Bureau Van Dyke
DEAL VALUE Defined as the total value of consideration paid by the acquirer
that may be associated with any index, thus a parsimonious FSI can be
excluding fees and expenses. To avoid noise in the analysis deal
derived. The model specification of the FSI is presented in Section 3.2.1. value is set for at least £1 m or above. Source: Zephyr, Bureau Van
Dyke
3.1.2. M&A data DEAL Represents average of bid premium as a percentage of the merging
The M&A sample is extracted from the Zephyr, from BvD.2 The PREMIUM firms' share price 1 month prior to the announcement of the event.
Source: Zephyr, Bureau Van Dyke
sample dataset includes both financial report items and event-specific
GROWTH Denotes the percentage of asset growth of M&A firms' year-end
firm-level variables. The selection of variables is largely consistent value prior to announcement. Source: ORBIS, Bureau Van Dyke
with Faccio and Masulis (2005). Announcements of M&A are checked to and Thompson ONE
identify transactions between UK firms by cross-referencing the Financial OWN Represents ownership of major shareholders is represented as
percentage of total number of shares of major shareholders. Major
Times and the acquirers' annual fillings. For deals to be included in the
Shareholders denote ownership of more than half of a firm's
sample, sets of criteria are stipulated and must be satisfied; first, the outstanding shares of M&A firms' year-end value prior to
firms must be listed on the London Stock Exchange (LSE), and the M&A announcement. Source: ORBIS, Bureau Van Dyke and Thompson
must have been completed; second, firms engaged in financial activities ONE
based on the Industry Classification Benchmark (ICB 8000) must be ROE Return on equity defined as the ratio of income before any
extraordinary charges to owners' equity of M&A firms' year-end
excluded from the sample. Since the financial sector was worst affected
value prior to announcement. Source: ORBIS, Bureau Van Dyke
during the crisis, the sample excludes all the financial firms undertaken and Thompson ONE
M&As during this period to avoid possible sample contamination CAR Stands for Cumulative abnormal return of M&A firms' portfolio
resulting in skewed results. The final M&A sample includes 376 stock for announcement year based on 250 trading days computed
under the GJR-GARCH specification. Source: Estimated using
option and 265 cash option deals. The payment method is decided by
share price from Datastream, where necessary supplemented by
using Zephyr's inbuilt selection criteria. All mixed/hybrid methods of Thompson ONE.
payment are excluded from the sample. The cash payment method in­ RISK Represents the systematic Risk (β) estimated using the market
cludes cash, non-contingent liabilities, and newly issued notes. Payment model under the GJR-GARCH specification. Source: Estimated
by stock is defined as shares with full voting rights. This is consistent using share price from Datastream, where necessary supplemented
by Thompson ONE.
with the approach taken by Faccio and Masulis (2005) and Martynova &
SIZE Denotes as ratio of the deal value to the deal value plus M&A
Renneboog (2009), however, with exception to the shares with inferior firm's market capitalization at the end of merger completion. To
voting rights are excluded since data availability was limited. eliminate any noise in analysis, the relative of the deal value to
The acquirers' stock price data is extracted from Datastream and acquirer market value is set to be at least 1%. Source: ORBIS,
supplemented by the Thomson ONE database. As reported in Panel 3 of Bureau Van Dyke.

Table 1, the majority of deals, i.e., around 62% of all the deals are
financed by the stock payment method. The definitions of financial comprehensive sustainability and CSR database that provides access to
report items and firm-level variables used in this study are presented in CSR ratings and information on over 17,268 firms from 134 industries
Table 2. In addition to Zephyr, Datastream and Thompson ONE, another in 143 countries.3 The database uses a schema to identify and rate the
database, i.e., Orbis that belongs to the BvD portfolio is used to com­ CSR activities of firms combining data from 10 socially responsible
plement and construct the sample. The financial report items and firm- investment (SRI) analysis firms (known as Environment, Social,
level variables proxy liquidity, leverage, asymmetric risk, and portfolio Governance – ESG), and over 600 nongovernmental organisations
return of the acquirers. (NGOs), government agencies, news feeds and social networking
groups. All the data received by the CSRHub are normalised, and an
3.1.3. Data for M&As pursuing CSR aggregate weighted average score is estimated to assign a firm-specific
M&As pursuing CSR are identified using CSRHub. Beginning with rating for CSR. To maintain the robustness of the estimation, firms
the main M&A sample in this study, a subset is extracted by matching rated below 50 are excluded from the final subsample.
the names of M&A firms' acquirers in the CSRHub rated 50 and above
on a CSR scale. A sample of 139 cash payment and 217 stock pay
ment acquirers is collected through the CSRHub. The CSRHub is a 3.2. Methods for model specification

3.2.1. Financial Stress Index (FSI) model specification

2 To test the acquirers' choice of payment method in M&A deals, a
Zephyr is an exclusive M&A database and belongs to the Bureau van Dijk
modified FSI is specified. The model is tested for both the main M&A
portfolio of the database. Since SDCs and Mergerstat coverage of the United
Kingdom deals is limited, Zephyr was used to source the initial sample. Zephyr
sample and the sample of M&A firms pursuing CSR activities. The
provides comprehensive coverage of M&A deals since 1996. Zephyr includes modified version of the FSI incorporates a single binary innovation
deals from both the USA and outside of the USA, but it is particularly strong in
Europe. Further, it covers deals of smaller values than those in the SDC and
3
Mergerstat. https://esg.csrhub.com/about-csrhub accessed on 20/10/2020.

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which includes both the payment choices i.e., cash payment method and The Hosmer—Lemeshow test is not significant (p-value > 0.10); thus,
the stock payment method, as 0 and 1, respectively. The study expects the model is parsimonious and robust. In addition, the model is not
binary innovation to be significantly different for the cash and stock outperforming a naïve proportional chance model (Joy & Tollefson,
payment methods. The model is stipulated under a binary logistic 1975), therefore the null hypothesis is rejected (p-value <0.01). The
specification: Omnibus statistic is significant (p-value <0.01) indicating that the coef­
ficient of the logistic regression along with the intercept term is statisti­
Ytj = β0j + δj dtj + εtj (1)
cally significant. The Cox and Snell R2 and Nagelkerke R2 statistics,
Where Ytj is the dependent variable and j is the choice of payment respectively, suggest that the model explains 65% and 68% variability of
option (cash or stock) during year t. t represents the period from 2007 to the independent variable for the main M&A sample. The Cox and Snell R2
2010. The variable is defined as: and Nagelkerke R2 statistics explain 67% and 72% variability of the in­
{ dependent variable for the sample of M&A firms pursuing CSR activities,
Ytj =
0 if the observation is a cash payment method M A deal respectively. Further, the Kolmogorov–Smirnov statistic is not signifi­
1 if the observation is a stock payment method M A deal. cant, eliminating the concern of non-normality of distribution. The
dtj is the FSI composite index during year t. t represents the period overall test results confirm the explanatory robustness and statistical
from 2007 to 2010. goodness-of-fit of the models for both iterations. This suggests that the
The conditional mean of the specified model is: variable estimations are unbiased, and they are the best fit for the model.
( ⃒ ) The reported coefficient value for dtj= the FSI composite index is
E yj ⃒dj = β0j (2) 0.786 with a standard error (SE) of 0.041. This is statistically significant
( ⃒ ) at the 1% level for the main M&A sample. The coefficient value for the
E yj ⃒dj = 1 = β0j + δj (3) sample of M&A firms pursuing CSR activities is 1.076 with a standard
error of 0.312 which is statistically significant at the 1% level. The Wald
where the coefficient δj captures the changes in payment choice, i.e.,
statistics and Odds ratio (eβ) are 17.564 and 2.195, respectively, at a
the cash payment method is significantly different from the stock pay­
95% confidence interval (CI) for the main sample, and the Wald statis­
ment method during the financial crisis. A significant positive or nega­
tics and Odds ratio (eβ) are 19.347 and 3.108, respectively, at a 95% CI
tive δj indicates what type of payment choice is preferred by the
for the M&A firms pursuing CSR activities. The estimated Odds ratios are
acquirers during the crisis.
e0.786 (2.195) and e1.134 (3.108) for the main sample and the M&A firms
pursuing CSR activities, respectively. The findings suggest that dtj= the
3.2.2. Payment choice model specification
FSI composite index has a statistically significant effect on the methods
The payment choice model includes several financial report items
for financing M&A deals during the financial crisis in both instances. The
and firm-level variables to examine the changes in capital structure, cost
Odds ratio (eβ) indicates that the likelihood that the market favours a
of capital, information asymmetry and ownership of the acquiring firms.
stock payment method during this period nearly twice as much as a cash
This model is tested for the main M&A sample and reiterated for the
payment method for the main sample and almost three times for the
M&A deals pursuing CSR activities. The binary logistic model is speci­
acquiring firms pursuing CSR activities for social innovation. The stock
fied as:
payment method is relatively safer than the cash and hybrid methods
Y*i,t (π) = a0 + a1 COLLATERALi,t + a2 LEVERAGEi,i + a3 ln(EBIT)i,t since the associated risk is shared between the acquirer and the target
+ a4 MTBVi,t + a5 DEALVALUEi,t + (Faccio & Masulis, 2005; Martynova & Renneboog, 2009). More pre­
cisely, in the stock payment method, the risk is shared between the
a6 DEALPREMIUMi,t + a7 GROWTHi,t + a8 OWNi,t + a9 ROEi,t + acquiring and target shareholders in proportion to the percentage of
stock holdings each owns individually (Rappaport & Sirower, 1999).
a10 CARi,t + a11 RISKi,t + a12 SIZEi,t + εi,t (4) Moreover, the stock payment method mitigates the overpayment issue
for the acquirers if the targets' valuation is less obvious (Huang, Officer,
In this model, Yi, t* is a binary latent 0,1 variable for firm i in event & Powell, 2016). Given that the financial crisis affected the wider
year t, defined as observable 0, 1 (cash payment method or stock pay­ market and firms extensively, the targets' valuation might have been less
{
1 if Y*i,t ≥ 0 obvious to the acquirers. Further, this may also arise because of infor­
ment method) dummy variable, where yi,t = , the lo­
0 if Y*i,t ≤ 0 mation asymmetry in the B2B market after a deal is announced. In
( ) addition, the results suggest that the risk-sharing between pre-merger
gistic transformation that gives the log-odds Ln 1−π π . A positive and
entities is dispensed fairly, thus, the market prefers a safer choice like
significant value of any coefficient indicates a sizable influence of that a stock payment method during a fragile financial system (Wagner,
variable on the likelihood of choosing the stock option over the cash 2010). Further, risk-sharing is a typical attribute of the B2B market
option for payment. (Kato & Schoenberg, 2014; Öberg et al., 2007). Therefore, it is highly
likely that the risk-sharing might add value to the business partners in
4. Empirical results the B2B market through events like M&As. This is consistent with
Massetti and Zmud (1996), who evaluate the B2B relationship with
4.1. Financial Stress Index (FSI) results market-driven risk. Since organisational portfolios, i.e., capital struc­
ture, marketing integration, sales task and customer–supplier relation­
The results from the FSI estimate, i.e., Eq. (1) indicate that the model ships are more tightly coupled as a result of M&As, the associated risks
is well specified and provides a goodness-of-fit for both the main sample with deal-making significantly increased during the crisis period
M&A deals and M&A firms pursuing CSR activities. The estimation re­ (Hempel & Kwong, 2001; McIvor, Humphreys, & McCurry, 2003;
sults are not reported in a table since the model is a simple binary choice Westland, 2002). However, acquirers opt for the stock payment method
logistic regression with only one independent variable, i.e., dtj= the FSI in anticipation of risk-sharing. The overall findings from the FSI esti­
composite index, where j is the is the choice of payment option during mation show that the market favours the stock payment method during a
year t. t represents the period from 2007 to 2010. Yi, t* is a binary latent financial crisis, despite the higher risk involved with M&A deals.
0,1 variable for firm i at event year t, where 0 represents the choice of
cash payment method and 1 represents the choice of stock payment
method for M&A deals.

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4.2. Results of M&A payment choice during the financial crisis 4.2.2. Results of payment choice model for the M&A sample
4.2.1. Summary statistics of M&A firms and M&A firms pursuing CSR The binary logistic model tests several significant determinants of
activities payment choice, i.e., capital structure, ownership and asymmetric in­
The summary statistics of the variables used to test the financial formation that affect the market dynamics of both the financial market
report items and firm-level variables for both sets of samples are re­ and the B2B market. The findings from the payment choice model, i.e.,
ported in Tables 3 and 4, respectively. The t-statistics for tests of mean Eq. (4) indicate that the model is parsimonious and robust. Table 5 re­
differences and Z-statistics from the Wilcoxon two-sample test indicate ports the estimation results. The reported ‘percentage correctly classi­
that the mean values for both the cash and stock payment methods are fied’ is 80%, which is significant at 1% level. The Cox and Snell R2 and
significantly different except for two variables, i.e., leverage and risk for Nagelkerke R2 statistics explain 21% and 25% variability of all the
both samples. Given the market was severely affected by risk and con­ variables, respectively. The Hosmer–Lemeshow test is not significant (p-
strained by liquidity, both the leverage and risk are likely to show sta­ value > 0.10), and the model is not outperforming a naïve proportional
tistical non-conformity. chance model (Joy & Tollefson, 1975). Therefore, the null hypothesis is
The difference between the mean values, i.e., 0.387 and 0.421, for rejected (p-value <0.10). The Omnibus statistics are significant (p-value
the main sample and 0.326 and 0.372 for the M&A firms pursuing CSR ≤0.01), showing that the coefficients of the logistic regression along
activities for the variable COLLATERAL suggest that firms that opt for with the intercept term are significant. Further, the Kolmogor­
stock financing have a larger asset base compared to cash-financed M&A ov–Smirnov statistics are not significant for three estimated residual
firms. Firms with a larger asset base provide a more stable outlook to measures, i.e., logit residuals, studentized residuals and standardised
both the market and investors since a larger assets base can be recapi­ residuals indicating normality. This suggests that the parameter esti­
talised and pay off any default payments, thus, can reduce managerial mates of this model are unbiased. Overall, the results, i.e., intercept
friction (Booth et al., 2001; Margaritis & Psillaki, 2010). Particularly, coefficient is 0.897 significant at 1% level with Odds ratio 2.452 indicate
M&A firms in the B2B market scrutinise the asset tangibility of merged that stock payment is the preferred method for financing M&As during
entities for transactional benefits, as a higher level of asset base de­ the financial crisis. These findings are consistent with the FSI results.
creases the default transactional cost associated with marketing (Lee Almost all the coefficients of the payment choice model are signifi­
et al., 2011), and sales and supply-chain processes (Kato & Schoenberg, cant at 1% (p-value <0.01) except for variables, ln(EBIT) and RISK.
2014). The t-statistics and Wilcoxon two-sample test are statistically Besides, among all variables, only COLLATERAL denotes a negative
significant at a 5% level. A statistically significant EBIT for both pay­ coefficient value and significant at 5%. The insignificant EBIT indicates
ment methods indicates a substantial difference in their mean values liquidity concern was real during the crisis for the cash payment
(2.231 for the cash payment method and 1.580 for stock payment method, but it is unlikely to be an issue for the stock payment method.
method for the main sample; and 1.050 for cash payment method and The liquidity of acquirers is a key feature of the B2B market since most
0.965 for stock payment method for the M&A firms pursuing CSR ac­ business partners view higher liquidity as a measure of the future
tivities). The higher EBIT for cash payment deals is typical as the cash business relationship, i.e., marketing integration, sales enhancement
payment method requires more liquidity than a stock payment method and customer engagement (Kato & Schoenberg, 2014; Lee et al., 2011).
(Faccio & Masulis, 2005; Martynova & Renneboog, 2009). The higher The variable COLLATERAL suggests that cash payment method is likely
ROE of stock payment method M&A deals suggests an increase in the to increase tangible assets. Higher tangible assets support supply-chain
liquidity of firms after deal completion. The mean values of the variable collaboration and sales revenue growth through resource complemen­
DEAL VALUE for the main sample indicate a stark difference for both the tarity (Rahman & Lambkin, 2015). In general, the higher tangibility of
payment methods, whereas, for M&A firms pursuing CSR, the difference assets motivates business partners in the B2B market, due to the benefits
is less pronounced. The value of cash payment deals is almost one-third they receive after the M&As are completed (Kato & Schoenberg, 2014;
the value of stock payment deals for the main sample. Their t-statistics Lee et al., 2011).
and Wilcoxon two-sample test are statistically significant at the 5% The statistically insignificant coefficient values for variables In(EBIT)
level, which is consistent with Faccio and Masulis (2005), and Marty­ and RISK are 0.098 and 0.663 with reported Odds ratios (eβ) of 1.103
nova & Renneboog (2009). Other variables, MTBV, GROWTH, CAR and and 1.941, respectively at a 95% CI. The insignificant EBIT suggests that
OWN indicate a similar significant difference between the cash and stock the stakeholders of the acquiring firms have not received the event well;
payment methods for both samples. since their expectation of cost reduction and enhanced revenue is not

Table 3
Summary statistics of cash option and stock option M&A deals.
Variables Mean Std. Dev. t-statistics for tests of mean differences Z-statistics from the Wilcoxon two-
sample test

Cash option (N Stock option (N Cash option (N Stock option (N Cash option (N Stock option (N Cash option (N = Stock option (N
= 265) = 376) = 265) = 376) = 265) = 376) 265) = 376)

COLLATERAL 0.387 0.421 0.762 0.698 − 3.564* 2.345** 4.897** − 3.886**

LEVERAGE 0.487 0.121 0.664 0.677 − 5.096 3.089 − 10.318 − 8.765
EBIT 2.231 1.580 0.491 0.501 − 5.085*** − 5.451*** 9.214*** 3.409***
MTBV 1.589 1.871 1.719 1.887 − 6.668*** − 0.889* − 7.340*** − 9.197**
DEAL VALUE 287 876 67 83 − 2.920* − 4.123** 4.319* 3.873**
DEAL 0.690 0.528 1.970 1.087 − 6.179*** − 2.345** 9.798*** 5.407*
PREMIUM
GROWTH 1.586 1.661 0.146 0.391 − 4.202*** − 2.479* 2.360*** − 8.993**
OWN 0.632 0.802 2.883 2.992 − 3.337** 3.589** − 10.360*** − 4.087***
ROE 0.432 0.733 1.860 1.733 1.654*** − 3.337** − 2.682*** − 3.615**
CAR 0.031 0.084 2.335 3.087 − 2.808** 3.009* 8.616** 2.767**
RISK 0.381 0.373 0.552 0.213 − 5.096 − 2.823 − 10.318 − 3.886
SIZE 0.267 0.344 0.112 0.225 − 3421** − 3.287** 2.665** 4.769**

Note: *, ** and *** Statistically significant at 10%, 5% and 1%, respectively. This table reports summary statistics of exogenous variables used in this study for cash and
stock payment method M&A deals. Each set of data reports Mean and Standard deviation. The statistical significance is estimated using the standard t-statistics and
supplemented by Wilcoxon two-sample test for test of mean differences. The variable definitions are presented in Table 2.

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Table 4
Summary statistics of cash option and stock option M&A deals pursuing CSR activities.
Variables Mean Std. Dev. t-statistics for tests of mean differences Z-statistics from the Wilcoxon two-
sample test

Cash option (N Stock option (N Cash option (N Stock option (N Cash option (N = Stock option (N Cash option (N = Stock option (N
= 139) = 217) = 139) = 217) 139) = 217) 139) = 217)

COLLATERAL 0.326 0.372 0.064 0.051 − 3.445** 2.112*** 3.998** − 2.987**

LEVERAGE 0.118 0.116 0.099 0.088 − 2.961 2.678 − 9.218 − 7.681
EBIT 1.050 0.965 0.092 0.086 − 3.467*** − 4.876** 8.321*** 2.987***
MTBV 1.946 1.875 0.488 0.041 − 4.213*** − 0.654** − 6.867*** − 8.298**
DEAL VALUE 302 496 43 53 − 3.567** − 3.342** 3.213* 3.976**
DEAL 0.429 0.542 0.283 0.031 − 5.098** − 3.071** 8.976*** 4.876**
PREMIUM
GROWTH 1.269 1.976 0.114 0.013 − 3.102** − 2.318* 2.310*** − 7.997**
OWN 1.014 1.002 0.252 17.045 − 4.509*** 2.978** − 10.211*** − 4.701***
ROE 0.613 0.626 0.047 0.036 2.019*** − 3.432** − 2.564*** − 2.873**
CAR 0.005 0.006 0.001 0.001 − 2.003** 2.765** 7.698** 2.027**
RISK 0.284 0.281 0.123 0.132 − 4.765 − 3.013 − 9.665 − 2.989
SIZE 0.234 0.291 0.050 0.050 − 3.113*** − 2.992** 2.023** 3.789**

Note: *, ** and *** Statistically significant at 10%, 5% and 1%, respectively. This table reports summary statistics of independent variables used in this study for cash
and stock payment method M&A deals. Each set of data reports Mean and Standard Deviation. The statistical significance is estimated using the standard t-statistics and
supplemented by Wilcoxon two-sample test for test of mean differences. The variable definitions are presented in Table 2.

the B2B market views risk as central to market relationships (Sutton

Table 5
et al., 2008), and the level of risk can affect business relationships
Logistic results for cash option vs. stock option M&A deals.
following M&A events (Khazanchi & Vipin, 2016). The block-holders in
Variables β Wald'sχ2 eβ(Odds ratio) acquiring firms are usually risk-averse; however, a financial downturn
Constant 0.897*** (0.032) 19.624 2.452 may necessitate them to ignore the risk-return trade-off. Equally,
COLLATERAL − 1.075** (0.032) 1.945 0.341 acquirers are neutral to the changes in EBIT as the market response
LEVERAGE 0.876*** (0.014) 11.314 2.401
during the financial crisis does not counterbalance the optimal debt level
ln(EBIT) 0.098 (0.001) 14.975 1.103
MTBV 1.654*** (0.041) 2.646 5.228
of firms if they had undertaken a leveraged cash payment method to
DEAL VALUE 1.058*** (0.013) 9.263 2.881 finance their M&A deals.
DEAL PREMIUM 0.006*** (0.002) 7.849 1.006 All significant variables, i.e., MTBV, OWN, DEAL VALUE, LEVERAGE,
GROWTH 0.505** (0.017) 3.101 1.657 GROWTH and ROE, suggest that a stock payment method benefits the
OWN 1.242*** (0.045) 26.78 3.463
acquirer more than a cash payment method, and acquirers have regis­
ROE 0.006*** (0.002) 12.776 1.237
CAR 0.004 (0.001) 6.771 1.004 tered an increase in their firm-level measures. A preference for stock
RISK 0.663 (0.006) 9.032 1.941 payment method demonstrates that the market value of acquiring firms
SIZE 1.332** (0.008) 8.332 0.674 increases compared to their book value. Particularly, the degree of in­
Goodness-of-fit test χ2 formation being transmitted to investors enhances the market value of
Omnibus model Test 330.447***
Hosmer &Lemeshow Test 39.221
the firm, thus, the significance of information asymmetry is justified
Diagnostic tests (Moro, Fink, & Maresch, 2015). Information asymmetry gives firms in­
Percentage correctly classified 80.0*** formation advantages in the B2B market (Berthon et al., 2003) and leads
Cox and Snell R2 0.214 to market motivated growth, i.e., marketing integration and sales task
Nagelkerke R2 (Max rescaled R2) 0.252
improvement (Weber & Dholakia, 2000). Acquirers are incentivised for a
Kolgomorov-Smirnov
Logit residuals 6.321 stock option when the asymmetric information about the target's assets is
Studentized residuals 6.776 high (Hansen, 1987). The variable ownership (OWN), with a reported
Standardised residuals 7.112 Odds ratio of 3.463 (e1.242), significantly improves when a stock payment
Note: *, * * and * * * Statistically significant at 10%, 5% and 1%, respectively. method is undertaken. Therefore, the probability of major shareholding
The sample contains 265 cash payment method M&A deals and 376 stock increases almost three times if a stock payment method deal is carried
payment method M&A deals over 2007–10. The statistical significance is esti­ out. That is, greater stock ownership supports stock payment deals, while
mated using the standard t-statistics. The standard errors of the coefficients are a moderate concentration of shareholdings makes stock payment deals
reported in parentheses. The independent variables are defined in Table 2. The less likely (Martin, 1996). This, in turn, suggests that ownership for
Joy and Tollefson (1975) proportional chance test is used to determine the corporate control is achieved when a stock payment method deal is un­
significance of the percentage correctly identified. The Kolmogorov–Smirnov dertaken. A higher shareholding improves ownership concentration, and
test for the null of normality is based on the estimates after eliminating Stu­
it facilitates market integration for the firms operating in the B2B market
dentized residuals that are larger than ±3.
(Bauer et al., 2020). The shareholders of acquiring firms during the
The model estimated for the choice of payment method using a binary choice
financial crisis prefer a stronger hold on the firm's capital structure.
logistic regression is as follows:
Yi, t*(π) = a0 + a1COLLATERALi, t + a2LEVERAGEi, i + a3 ln (EBIT)i, t + a4MTBVi, Therefore, they opt for stock payment method deals. Interestingly, a stock
t + a5DEALVALUEi, t + a6DEALPREMIUMi, t + a7GROWTHi, t + a8OWNi, t+
payment method shows greater leverage effect (Odds ratio 2.401, e0.876)
a9ROEi, t + a10CARi, t + a11RISKi, t + a12SIZEi, t + εi, t over cash payment method deals. This indicates a volatile market situa­
tion, where an acquirer can avoid debt issuance and consider a stock
met in the financial and B2B markets (Lee et al., 2008; Oh et al., 2014). payment method. As a result, no firm-level financial constraints would
Similarly, insignificant RISK suggests that under sensitive market con­ arise or reduce their existing debt capacity, so firms can reinvest the cost
ditions, it is unlikely that a cash payment method would mitigate risk of servicing debt into other functional activities, i.e., developing new
and acquirers would consider a cash payment method over a stock product lines and brand alignment. The DEAL VALUE, with a coefficient
payment method, although risk mitigation remains as one of the key value 1.058 and Odds ratio of 2.881, for acquirers increases if a stock
benefits of the cash payment method (Faccio & Masulis, 2005). As such, payment method is used. As such, the average deal value for the stock

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payment method deals is substantially larger than that of the cash pay­ Table 6
ment method deals (Faccio & Masulis, 2005). Also, a stock financed M&A Logistic results for cash option Vs. stock option M&A deals pursuing CSR
shows a significant CAR (p-value <0.01) with a 1.004 Odds ratio, activities.
therefore, suggests acquirers of stock payment deals gain higher cumu­ Variables β Wald'sχ 2 eβ(Odds ratio)
lative returns compared to cash payment method deals. The acquirers Constant 0.786*** (0.023) 16. 345 1.503
usually like stock payment method when their stock is overvalued by the COLLATERAL − 0.067** (0.021) 1.432 0.511
market; for the reason, returns from an overvalued stock indicate less LEVERAGE 0.796*** (0.014) 10.342 1.021
dilution of existing shareholdings (Hansen, 1987; Myers & Majluf, 1984). ln(EBIT) 1.234** (0.032) 12.689 1.098
MTBV 2.801*** (0.032) 3.443 3.376
Stronger shareholding increases the market performance of the merged
DEAL VALUE 1.067*** (0.014) 9.459 1.009
firms and the degree of relatedness in the B2B market when sales and DEAL PREMIUM 0.012 (0.001) 8.765 0.234
distribution channels are integrated between the acquiring and target GROWTH 1.212** (0.025) 5.654 2.543
firms (Rahman & Lambkin, 2015). However, this is not consistent with OWN 1.561 (0.051) 18.456 1.046
the study by Travlos (1987) who finds negative announcement returns ROE 0.087*** (0.012) 12.783 1.321
CAR 0.003** (0.001) 8.432 1.521
for stock payment method deals under normal market conditions. RISK 1.721*** (0.007) 8.971 1.389
Estimating firm-level characteristics of acquirers provides evidence SIZE 1.551** (0.023) 7.675 0.701
that a financial crisis significantly increases the probability of stock Goodness-of-fit test χ2
payment M&A deals and carries potential implications for the B2B Omnibus model Test 294.987***
Hosmer &Lemeshow Test 43.876
market. In particular, a stock payment method enhances the capital
Diagnostic tests
structure and ownership concentration of acquirers. This is reflected in Percentage correctly classified 86.0***
their GROWTH, DEAL VALUE and ROE. Moreover, the asymmetric in­ Cox and Snell R2 0.345
formation proposition remains valid for such firms as seen in their CAR Nagelkerke R2 (Max rescaled R2) 0.361
and market-to-book-value. Firm growth, i.e., financial, marketing and Kolgomorov-Smirnov
Logit residuals 6.441
sales, remains one of the strategic factors of the B2B market and a prime
Studentized residuals 7.011
motive for M&As (Rahman & Lambkin, 2015). Therefore, the results Standardised residuals 6.886
show that acquirers gain substantial value through stock financing
Note: *, * * and * * * Statistically significant at 10%, 5% and 1%, respectively.
during a time of financial distress.
The sample contains 139 cash payment method M&A deals and 217 stock
payment method M&A deals over 2007–10 those are pursuing CSR. The statis­
4.2.3. Results of the payment choice model for firms pursuing CSR activities tical significance is estimated using the standard t-statistics. The standard errors
The binary logistic model is reiterated for the M&A sample pursuing of the coefficients are reported in parentheses. The independent variables are
CSR activities examining the extent to which social innovation is defined in Table 2. The Joy and Tollefson (1975) proportional chance test is used
captured through M&As. Further, this study explores the relevance of to determine the significance of the percentage correctly identified. The Kol­
stock and cash payment methods of CSR-pursuant M&A firms in the mogorov–Smirnov test for the null of normality is based on the estimates after
financial and B2B markets. The estimation results are reported in eliminating Studentized residuals that are larger than ±3.
Table 6. The significant differences between the two payment methods The model estimated for the choice of payment method of M&A firms pursuing
reject the null hypothesis confirming an unbiased and parsimonious CSR using a binary choice logistic regression is as follows:
Yi, t*(π) = a0 + a1COLLATERALi, t + a2LEVERAGEi, i + a3 ln (EBIT)i, t + a4MTBVi,
model. The model accounts for 86% of percentage correctly classified,
t + a5DEALVALUEi, t + a6DEALPREMIUMi, t + a7GROWTHi, t + a8OWNi, t+
which is significant at the 1% level. The Cox and Snell R2 and Nagel­
a9ROEi, t + a10CARi, t + a11RISKi, t + a12SIZEi, t + εi, t
kerke R2 statistics explain 35% and 36% variability of firm-level vari­
ables used in the model, respectively. All other test statistics for
robustness, i.e., the Hosmer–Lemeshow test, the Omnibus statistic and
Contrary to the main sample findings, the significant EBIT indicates
the Kolmogorov–Smirnov statistics, suggest that the parameter esti­
that the liquidity of the M&A firms pursuing CSR activities matters for
mates are robust and the model is well-specified. The results indicate
acquirers if a cash payment method is undertaken during the crisis.
that a stock payment method is favoured well-over a cash payment
Particularly in the B2B market, more liquid acquirers signal higher sales
method for the firms pursuing CSR and closely tally with the main
opportunities and less transactional cost (Kato & Schoenberg, 2014; Lee
sample as well as with the FSI results.
et al., 2011; Rahman & Lambkin, 2015). This further suggests that CSR
All the coefficients in the model are significant at 1% (p-value <0.01)
led firms, while undertaking M&As, are well positioned to form better
except the variables ownership (OWN) and DEAL PREMIUM. Contrary
business partnership if they finance the deals through stock payment
to the main sample results, ownership and the deal premium of M&A
method while they can preserve the cash-holding for the purpose of social
deals pursuing CSR activities are not significant, whereas variables ln
innovation. The estimation of other firm-level variables, COLLATERAL,
(EBIT) and Risk are significant. This indicates that while firms pursuing
DEAL VALUE, MTBV, GROWTH, CAR and SIZE, reports similar results
CSR and opting for M&A, the payment method of financing a deal has
consistent with those of the main M&A sample. Unlike the results in the
different implications. Despite what method of payment is used during
main sample, RISK is statistically significant at the 1% level with a co­
the deal, business partners pay less attention to the ownership of
efficient value of 1.721 and a reported Odds ratio (eβ) 1.389, suggesting
acquirers and the amount of deal premium paid, as long as acquiring
the market receives the M&A events well when firms financing their
firms are practising CSR provisions. As such, the deal premium is
deals with cash despite the risk of liquidity during the financial crisis.
significantly related to the CSR provisions of the acquirers but impacts
However, positive post-event relationships with stakeholders can miti­
acquisition premiums only in cross-border deals (Gomes & Marsat,
gate firm-specific risk through implicit contract by reducing cash-flow
2018). Ownership is highly correlated to deal premium that affects
shocks (Godfrey, Merrill, & Hansen, 2009; Gomes & Marsat, 2018).
arbitrage spreads, i.e., the difference between the offer price and market
This suggests M&A firms pursuing CSR are highly likely to foster a more
price for the deal (Arouri et al., 2019). This explains why ownership is
balanced and harmonious relationships with stakeholders, so risk seems
not a significant determinant for acquirers who are practising CSR ac­
less relevant to them. This helps to clarify why financial markets in
tivities, as payment methods can substantially affect the offer price.
general and the B2B market in particular, view risk as less relevant while
Besides, in the B2B market, M&A firms pursuing CSR carry greater
deciding a payment method if the acquiring firms are pursuing CSR ac­
significance for the business partners, and they often disregard the board
tivities. As such, acquirers that practice CSR activities generate better
structure of acquirers, thus they can improve their marketing and sales
synergy from M&A deals (Aktas et al., 2011), and they signal positive
channel integration (Lins et al., 2017; Servaes & Tamayo, 2013).

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shareholder relationships to the business partners in the B2B market after P2. M&A firms pursuing CSR to achieve social innovation improve
the M&A is completed (Chen & Gavious, 2015). stakeholder relationships and undertake higher risk.
Although these findings are largely consistent with the main sample
The payment choice of the M&A firms pursuing CSR activities carries
results, the insignificant results for ownership and deal premium show
significant market implications(Gomes & Marsat, 2018). M&A firms
that the board structure and the perceived market value of M&A deals do
pursuing CSR activities are in a better position with their higher
not influence the stock payment method. That is, if firms pursue CSR
liquidity that they use for marketing and sale channel improvement
activities to achieve social innovation, the market disregards the voting
since higher liquidity improves sales opportunities and reduces trans­
franchise of the board, as M&A firms can generate higher value through
actional cost (Kato & Schoenberg, 2014; Lee et al., 2011; Rahman &
stakeholder contract by marketing integration and sales growth (God­
Lambkin, 2015). Specifically, greater cash-holding helps acquirers to
frey et al., 2009; Gomes & Marsat, 2018). Greater stakeholder contract
form better stakeholder relationship (Kato & Schoenberg, 2014; Rah­
generates higher value for the B2B market through the responsiveness of
man & Lambkin, 2015). However, despite undertaking higher risk due to
firms to improve relationships with business partners after the M&A
the liquidity constraints during the financial crisis, acquirers prefer stock
deals are completed (Chen & Gavious, 2015; Tarnovskaya, 2015).
payment method. Particularly, acquirers view risk-sharing as a mecha­
nism to reduce asymmetric information between them and the target
5. Discussion
firms (Hansen, 1987; Myers & Majluf, 1984). During the financial crisis,
while market is less information efficient, acquirers prefer stock
The recent financial crisis has adversely affected both the financial
financing when the target firms share the risk of revaluation and they
market (Berger & Bouwman, 2013; Conti et al., 2019) and the B2B
can avoid the cost of resource alignment to adjust the risk (Hansen,
market (Oehmen et al., 2020). Subprime lending, highly leveraged
1987; Martin, 1996). Risk is important for stakeholders' relationship
securitisation and securitised bonds contributed substantially to the
while undertaking an M&A (Khazanchi & Vipin, 2016) and plays a
financial crisis (Boston, 2007; Ephraim & Kassimatis, 2004; Petroff,
critical role in shaping business partnership in the B2B market (Sutton
2008). Distressed market conditions increased the volatility of busi­
et al., 2008). Thus, it is highly likely that the positive post-event re­
nesses, contracted ownership, disturbed partnerships in the financial
lationships with stakeholders compensate for the associated risk through
market and B2B market leading to fraudulent managerial behaviour
implicit contract by reducing cash-flow shocks and cost of resource
(Beltratti & Paladino, 2013; Gummesson, 2014; Ivashina & Scharfstein,
alignment (Godfrey et al., 2009; Gomes & Marsat, 2018). Similarly,
2010). Such market conditions also largely affected M&As. M&As and
participants in the B2B market view risk as less relevant while deciding a
their choice of payment methods bring changes to ownership concen­
payment method, since higher synergy that arises from the deal miti­
tration, information asymmetry and capital structure of firms (Öberg
gates agency cost and improves stakeholder relationships (Aktas et al.,
et al., 2007). Several theories and related motives offer reasons why
2011; Chen & Gavious, 2015).
such changes occur for M&A firms (Boateng & Bi, 2013; Cho & Ahn,
2017). One of the robust arguments, that tries to explain and empirically P3. The method of payment to finance M&A deals in a financially
validate, is the choice of payment method during M&A deal-making distressed market carries business significance for acquirers in the B2B
(Chen et al., 2018; Zhou et al., 2016; Heron & Lie, 2002; Andrade market.
et al., 2001; Servaes, 1991; Asquith et al., 1990). Therefore, in line with
The choice of payment methods affects the business significance for
the research questions and focusing on the related literature, proposi­
acquirers in the B2B market, when post-event higher level of asset base
tions are formulated and discussed below.
of acquirers leads to a reduction in transactional costs associated with
P1. The payment choice of M&A deals under a sensitive financial marketing (Lee et al., 2011), sales and the supply-chain process (Kato &
market favours stock financing well over the cash financing method. Schoenberg, 2014). Thus, acquirers of M&A firms in the B2B market can
add value to the money market by generating integrated sales and
A stock payment method helps sharing the related risk between the
supply-chain channels, when marketing, sales and supply-chain process
acquirer and the target, in proportion to the percentage of stock hold­
are cost intensive in a financially distressed market. Similarly, greater
ings, making it business-wise attractive for the acquirer (Faccio &
liquidity of M&A firms pursuing social innovation can improve sales
Masulis, 2005; Martynova & Renneboog, 2009; Rappaport & Sirower,
opportunities and reduce transactional cost (Kato & Schoenberg, 2014;
1999). Acquirer also can make adjustments in the target's valuation
Lee et al., 2011; Rahman & Lambkin, 2015). As such, higher sales op­
since the stock payment method addresses the overpayment issue
portunities promote collective business activities (Neslin & Shankar,
related to the deal premium (Huang et al., 2016). Given that M&As
2009). However, financial crisis adversely affected the business activ­
realign organisational portfolios, it is highly likely that the level of risk
ities resulting in limited sales opportunities. Moreover, acquirers favour
significantly increases during the crisis due to the cost of realignment
a stock payment method when information asymmetry between
(Hempel & Kwong, 2001; McIvor et al., 2003; Westland, 2002). How­
acquirers and targets is high. Particularly, because of high information
ever, despite the higher risk involved with the M&A deals during the
asymmetry, acquirers have an information advantage in the B2B market
financial crisis, acquirers are likely to favour the stock payment method
over their targets (Berthon et al., 2003), which leads their market-
due to its potential benefit of risk-sharing. As such, risk-sharing remains
motivated growth, i.e., marketing integration and sales task improve­
one of the anticipated outcomes of M&A deals undertaken in the B2B
ment (Weber & Dholakia, 2000). This shows acquirers opted for the
market (Kato & Schoenberg, 2014; Öberg et al., 2007). Moreover,
stock payment method expanded their market-led activities through
acquirers of stock financed deals register substantial improvement in
marketing and sales channels, implying the method of payment carries
their firm-level characteristics (Chun & Davies, 2010; De Silva & Wright,
business significance for acquirers in the B2B market.
2019). Thus, stock payment methods become attractive for the acquirers
Referring to proposition 1 and proposition 2, this study finds evidence
since they attempt to achieve growth and receive positive market
that the stock payment method is preferred over a cash payment method
returns during adverse market conditions. Also, increase in market value
when an M&A is undertaken in a financially distressed market. Particu­
of firms due to appreciation of shares tempt acquirers to consider stock
larly, acquiring firms that opt for stock payment methods register a sig­
payment method. Particularly, appreciation of shares due to investors'
nificant increase in their firm-level characteristics, such as market-to-
confidence improves the market value of acquirers.
book-value, deal value, growth, and CARs. The stock payment methods
improve acquirers' market growth and portfolio returns. As such,
improved market growth and portfolio returns lead to better marketing
integration (Rahman & Lambkin, 2015), growth of sales revenue (Lee

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et al., 2011), brand alignment and customer–supplier relationships (Cornu During the financial crisis, M&A firms significantly favour stock pay­
& Isakov, 2000; Swieringa & Schauten, 2008). Similarly, the firms those ment methods and M&A firms pursuing CSR activities receive significant
are pursuing CSR for the purpose of social innovation also favour stock benefits from better stakeholder relationships, even though they are
payment methods. By itself, synergy through value creation paves the way undertaking higher risk. Further, as M&As affect trading partners'
for social innovations (Arouri et al., 2019; Silva et al., 2020). This estab­ business transactions, the choice of payment methods influences the B2B
lishes that M&A firms pursuing CSR activities as their social innovation market. The FSI as a proxy for banking, equity and the foreign exchange
mandate can achieve market and portfolio growth, despite an adverse market captures changes in the B2B market during the financial crisis.
market condition, if they opt for stock payment method. The results also The findings underline how market views stock payment method more
indicate CSR-led M&A firms generate higher liquidity and improve their acceptable to circumvent the downside risk of borrowing that carries
relationship with stakeholders, even though they undertake higher risk. higher interest premium. The results also show how M&A firms gain
Particularly, higher liquidity helps acquirers to align and renew marketing resource complementarity through better stakeholder relationship. The
and sales channels by enhanced relationship with their stakeholders. Also, findings lends support to the RBV and the relational view theory.
acquirers reduce cash-flow shocks and cost of resource alignment, as they Second, the analysis of financial report items and firm-level variables
develop a better post-event relationship with stakeholders (Godfrey et al., of M&A firms and firms pursuing CSR activities reveals that growth,
2009; Gomes & Marsat, 2018). Therefore, acquirers of CSR-led firms have market-to-book value and deal value show significant improvement from
paid less attention to risk, but improved their relationship with the a stock payment deal compared to a cash payment deal. Growth achieved
stakeholders (Sutton et al., 2008). The improved relationship with the through sales revenue and market-to-book value of firms has a significant
stakeholders has moderated the level of risk and helped acquirers to impact on B2B branding, which is well-support by the RBV (Ohnemus,
enhance their market position in the B2B market. 2000). M&As often improve brand alignment; and brand alignment is
The results further show that the ownership concentration and value closely associated with wealth creation (Balmer, 2001). Thus, the results
of the deal premium bear no significant influence on the event outcome demonstrate that the B2B brand alignment of acquiring firms has been
for M&A firms pursuing social innovation through CSR activities. This is implicitly influenced by the payment choice of M&A firms during the
not consistent with the view that ownership is significantly related to the financial crisis. Furthermore, wealth accrual reflected by significant ROE
CSR provisions of the acquirers (Arouri et al., 2019; Gomes & Marsat, suggests that acquirers of stock payment method deals have achieved
2018). However, acquirers undertaking M&As for the purpose of better market growth. Since M&A deals were riskier during this period, the
business partnership in the B2B market pay less attention to the managers of stock payment method acquirers seek wealth transfer
ownership structure. Thus, they can improve their marketing and sales through the M&As to increase their cash reserve to service the trans­
integration without excessive control of the management (Lins et al., actional costs, i.e., portfolio restructuring, marketing integration and
2017; Servaes & Tamayo, 2013). Essentially, M&A firms pursuing social sales task cost of the deals, without burdening their existing resources.
innovation disregard the control mechanism of the management as M&A Stock payment method also reduces the post-event revaluation issue
firms create higher value through stakeholder contract by integrating associated with the shareholding of the acquiring firms (Jensen, 1986;
marketing and sales channels (Godfrey et al., 2009; Gomes & Marsat, Myers & Majluf, 1984). Post-event revaluation is a concern for the
2018). The higher stakeholder contract leads firms to improve re­ acquirers of M&As undertaken in the B2B market, and it is closely
lationships with their business partners after M&As are completed (Chen associated with the CSR activities of the firms (Arouri et al., 2019;
& Gavious, 2015; Tarnovskaya, 2015). Oehmen et al., 2020). In particular, if firms contribute to social innova­
Referring to proposition 3, the results also find that the choice of tion through CSR activities, they are likely to reduce the post-event
payment methods carries business significance for the acquirers in the revaluation to address information asymmetry so that they can attain
B2B market. M&As are seen as value drivers in the B2B market for better marketing efficiency (Aktas et al., 2011; Chen & Gavious, 2015).
several reasons, i.e., post-merger customer relationships (Kato & However, the risk measure of the main sample is insignificant,
Schoenberg, 2014), the corporate reputation of merged firms (Chun & although firm-level leverage is significantly lower if a stock payment
Davies, 2010) and the marketing performance of merged firms (Rahman method deal is undertaken. Risk reduction is related to both brand
& Lambkin, 2015). Particularly, changes in demand of goods and ser­ alignment and the pricing of firms, and this leads to superior market
vices (Weber & Dholakia, 2000), marketing synergies (Rao et al., 2016), performance (Richey Jr. et al., 2008). It is plausible that a market sen­
sales-channel integration (Palmatier et al., 2007), and business behav­ sitive to larger economic shocks ignores firm-level risk, and managers in
iour (Chun & Davies, 2010) carry significant importance for M&A firms the B2B market are less cautious about risk because of their self-serving
in the B2B market. The results show acquirers are particularly interested opportunities are limited during the financial crisis. As such, risk-taking
in reducing the transactional costs and increasing their relationship with does not incentivise acquiring managers because of reduced economic
stakeholders. This implies acquirers seek to improve their market ac­ growth (Choi, Francis, & Hasan, 2010). This, in turn, explains the
tivities associated with marketing (Lee et al., 2011), sales and the relational view of M&A firms, as reduced economic growth restricts
supply-chain process (Kato & Schoenberg, 2014) in the B2B market by inter-firm resources and routines (Jeffrey & Singh, 1998; Prior, 2006).
reducing transactional cost and developing business partnership. As On the contrary, M&A firms pursuing CSR activities show that stock
such, M&As generate integrated sales and supply-chain channels adding payment method is associated with the probability of higher risk.
value to business partnership in the B2B market. Also, acquirers benefit Although risk mitigation remains an important reason for M&As, firms
from low information asymmetry due to information advantage in the pursuing CSR benefit from better shareholder relationships and disre­
B2B market over their targets (Berthon et al., 2003) leading to market- gard the concern of risk. Further, a significant earning suggests that the
motivated growth, i.e., supply-chain and marketing integration, sales CSR-pursuant M&A firms gain from a stock payment method due to
task improvement and resource alignment (Weber & Dholakia, 2000). improvement in their capital structure. Thus, M&A firms adopting social
innovation through their CSR activities receive both participant-
5.1. Theoretical implications beneficiary advantage and their process of social innovation increases
their value for their business partners.
The results show that the choice of payment method for M&A deals
during the financial crisis is atypical. The findings provide two strands of 5.2. Practical implications
evidence for the two samples, i.e., the M&A main sample and the M&A
sample that undertakes CSR activities as their social innovation The choice of payment for M&A deals helps wealth transfer for the
mandate. First, the acquirers' choice of payment largely depends on the acquirers, but how managers would arrive at an optimal decision to
market response while tested under a composite market index FSI. derive more value from the deal during a time of financial distress is not

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very explicit or documented. Further, how managers of M&A firms 6. Limitations and further research
pursuing CSR aactivities for the purpose of social innovation can
potentially decide a better payment method during the financial crisis is Despite several contributions, this study has limitations that can lead
barely explored. Evidence based on a multi-level aggregate measure, i. to further research. Although a comprehensive dataset is used, mixed/
e., the Financial Stress Index (FSI) – comprising banking, equity and hybrid payment method M&A deals are excluded from the current study
foreign exchange market indices, suggests that a financial crisis signif­ because of unavailable and missing data. The mixed/hybrid payment
icantly influences firms' choice of payment method during M&A deal- method dataset comprises only a marginal fraction, i.e., 9% of the main
making. M&A firms and M&A firms pursuing CSR activities demon­ sample. Therefore, their exclusion is unlikely to affect or skew the re­
strate a substantial propensity to finance their deals through stock sults. However, further studies may benefit from including mixed/
payment method. The managers of the merged entries evaluate their hybrid payment method deals if there is a sizable mixed/hybrid payment
business partnership in the financial and B2B market for their trans­ dataset available. This may offer a better perspective about the payment
actional relationship, growth in sales revenue and customer–supplier choices for M&As during a financial crisis and provide a better expla­
relationships (Kohtamäki & Rajala, 2016; Oh et al., 2014). The results nation of why M&As are B2B value drivers despite the financial crisis.
from this study show that improved stakeholder relationships, as a key They might also show how CSR-led M&As yield different values for the
anticipation from M&A deals, benefit the financial market and business business partners in the B2B market. As it is not sufficiently clear what
partners in the B2B market. Because of distressed market conditions, social innovation means and there is no consensual instrument to
managers of M&A firms and M&A firms pursuing CSR activities strive to measure social innovation (Mulgan, 2012), it would be of further aca­
achieve social innovation (Richey Jr. et al., 2008), marketing synergies demic interest to consider the fourth generation of innovation metrics
(Weber & Dholakia, 2000), sales-channel integration (Palmatier et al., (Milbergs & Vonortas, 2004) which comprises structural and intangible
2007), improved trading relationships (Rao et al., 2016), wider distri­ aspects of innovation in combination with CSR measures. Another lim­
bution networks (Kato & Schoenberg, 2014; Öberg et al., 2007), repo­ itation of this study is that it excludes some firm-level characteristics, i.
sitioned and re-imaged branding and greater demand for goods and e., the pre-merger valuation of acquirers and the degree of relatedness of
services (Chun & Davies, 2010) in the market. Managers, therefore, the market to business and industry-specific classification. Examining
should use a ‘rear mirror perspective’ (Cartwright et al., 2012) to review these measures might lead to a broader understanding of the post-event
their choice of payment for M&A deals. They should not formalise their sales force (Bommaraju et al., 2018) and marketing channel (Homburg
decision to undertake an M&A based solely on their cash holdings or & Bucerius, 2005), the role of marketing managers (Richey Jr. et al.,
retained earnings. Rather, they should consider the potential of main­ 2008) and synergy through innovation (Rao et al., 2016).
taining business relationships in the B2B market through shared value The current study focuses on the choice of payment methods of UK
with stakeholders. Besides, managers of M&A firms pursuing CSR should M&A deals. However, this study can potentially be replicated and
take extra precautions to mitigate risk if the deal is stock financed, even extended to other countries. This might have particular value for
though they have the advantage of enhanced stakeholder relationships emerging economies, which also have been affected by the financial crisis
because of the M&A deal. and where firms are less transparent about their CSR activities. This
Conventionally, managers pursue an M&A decision based on firm- might enhance the generalisability of the findings, contributing to the
level characteristics, and they often ignore wider market dynamics. In B2B and social innovation literature.
particular, key managers pay scant attention to structuring inter-
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