This paper empirically examines the effect of financing sources on announcement returns in mergers and acquisitions (M&As). Prior studies have focused on examining the impact of payment methods on announcement returns of M&As. This study is the first that attempts to link financing decision (sources of financing) and wealth creation to shareholders of Malaysian acquirers. Univariate analysis and OLS regression are conducted for 272 completed M&A transactions undertaken by Malaysian listed firms during the period of 2000-2017. The study considers the three main financing sources, which include stock financing, internal funds, and debt financing. The findings from univariate analysis indicate that M&As with debt financing show significantly higher returns in different multiday event windows around the announcement day. Similar results are found using OLS regression. Nevertheless, stock financing shows negative return. The sensitivity of market reaction to the source of financing used is robust to different measures of market performance.
