Using a sample of UK mergers and acquisitions from 1985-2004, we show that equity over-valuation appears to play an important role in the determination of financing method. Our results are broadly consistent with the Sheifer and Vishny (2003) theory of market-driven acquisitions rather than a...

A less well-known empirical finding for the US and UK is a pronounced low frequency negative relationship between inflation and Tobin’s q; a normalized market price of capital. This stylized fact is explained within a dynamic stochastic general equilibrium model using three key features: (i) a...