Instruments of financing mergers and acquisitions: theoretical foundations

The purpose of the study: to analyze the literature on the methods of financing M&A transactions and the factors that determine their choice. An attempt is made to summarize the various factors that influence the decision on the choice of ways to finance M&A transactions, in order to identify their impact on the effectiveness of the transaction. In conducting this research, such general scientific methods as a systematic approach, analysis of literary sources in Russian and English for the period 1980-2020, synthesis, and generalization were used. The methods studied included cash payments, stock payments, and mixed payments. For each method, the positive and negative results for transactions are summarized and analyzed. According to the results of the study, the factors that influence the choice of payment method in mergers and acquisitions are identified. It was found that factors such as financial leverage, free cash flow, interconnection, tax considerations, q-Tobin ratio, asymmetric information, growth opportunities, relative size of the acquiring and target companies, business cycle and corporate governance significantly affect the choice of payment method for the merger and acquisition transaction and the abnormal profitability of the acquiring company. The conclusions made by the author will help the management of companies involved in mergers and acquisitions to choose the appropriate ways to finance M&A transactions and optimize the structure of transaction financing.