Taking stock or cashing in? Shareholder style preferences, premiums and the method of payment

► We test hypotheses about impact of target shareholders' preferences on method of payment and premiums in acquisitions. ► Stock offers (unlike cash offers) allow target shareholders to defer capital gains taxes. ► The deferral value, however, depends on target shareholders' willingness to retain acquirer stock. ► We show bid premiums are negatively related to target shareholder tax liabilities and preference for acquirer stock. ► Difference between predicted cash and stock premiums significantly explains method of payment choice.