Simultaneous Equation Model for Interactive Relation between Capital Structure and the Payment Method

The relation between capital structure and payment method is the core of mergers and acquisitions. However, the interactive relation between the 2 of them has never been highlighted by any previous researches. The interaction between capital structure and payment method is studied in the Paper. The findings indicate that there is a significant interaction between capital structure and payment method; stock-payment is much more preferred by acquirers during capital market upsurge. We also find that, though the interactive relation does exist, it is not fully consistent with the target leverage theory, which means that the leverage is optimized in cash-payment cases, and deteriorated in stock-payment cases; and motivate on leverage optimization is weaker in stock-payment cases. Moreover, policy suggestions are provided in the end of the Paper.