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Motives for Takeovers: An Empirical Investigation

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Author Info
Berkovitch, Elazar
Narayanan, M. P.
Abstract

Three major motives have been suggested for takeovers: synergy, agency, and hubris. Existing empirical evidence is unable to clearly distinguish among these motives probably due to the simultaneous existence of all three in any sample of takeovers. This paper suggests a way of distinguishing among these competing hypotheses by looking at the correlation between target and total gains. It is argued that this correlation should be positive if synergy is the motive, negative if agency is the motive, and zero if hubris is the motive. The empirical results show that synergy is the primary motive in takeovers with positive total gains even though the evidence is consistent with the simultaneous existence of hubris in this sample. It is also found that agency is the primary motive in takeovers with negative total gains.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 28 (1993)
Issue (Month): 03 (September)
Pages: 347-362
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:28:y:1993:i:03:p:347-362_00

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  1. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series 543, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  2. Cassiman, Bruno & Colombo, Massimo & Garrone, Paola & Veugelers, Reinhilde, 2003. "Impact of M&A on the R&D process. An empirical analysis of the role of technological and market relatedness, The," IESE Research Papers D/500, IESE Business School. [Downloadable!]
  3. Rajdeep Singh, 1995. "Takeover Bidding with Toeholds: The Case of the Owner's Curse," Finance 9503001, EconWPA. [Downloadable!]
  4. Albert Banal-Estañol & Jo Seldeslachts, 2005. "Merger Failures," CIG Working Papers SP II 2005-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  5. Goergen, M. & Renneboog, L.D.R., 2002. "Shareholder wealth effects of European domestic and cross-border takeover bids," Discussion Paper 50, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  6. Jyrki Ali-Yrkkö, 2002. "Mergers and Acquisitions - Reasons and Results," Discussion Papers 792, The Research Institute of the Finnish Economy. [Downloadable!]
  7. Hamish Anderson & Ben Marshall, 2007. "Takeover motives in a weak regulatory environment surrounding a market shock: a case study of New Zealand with a comparison of Gondhalekar and Bhagwat’s (2003) US findings," Review of Quantitative Finance and Accounting, Springer, vol. 29(1), pages 53-67, July. [Downloadable!] (restricted)
  8. Dennis C. Mueller & B. Burcin Yurtoglu, 2007. "Corporate governance and the returns to acquiring firms' shareholders: an international comparison," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 879-896. [Downloadable!]
  9. John Becker-Blease & Lawrence Goldberg & Fred Kaen, 2008. "Mergers and acquisitions as a response to the deregulation of the electric power industry: value creation or value destruction?," Journal of Regulatory Economics, Springer, vol. 33(1), pages 21-53, February. [Downloadable!] (restricted)
  10. Linda Allen & Julapa Jagtiani & Stavros Peristiani & Anthony Saunders, 2002. "The role of bank advisors in mergers and acquisitions," Staff Reports 143, Federal Reserve Bank of New York. [Downloadable!]
  11. Gilroy, Bernard Michael & Lukas, Elmar, 2002. "The New Agenda for FDI: Evidence from South Korea and Germany," MPRA Paper 17970, University Library of Munich, Germany. [Downloadable!]
  12. Matilde Olvido Fernández & Juan Samuel Baixauli, 2003. "Motives for partial acquisitions between firms in the spanish stock market," European Journal of Finance, Taylor and Francis Journals, vol. 9(6), pages 581-601, December. [Downloadable!] (restricted)
  13. Utz Weitzel & Killian J McCarthy, 2009. "Theory and Evidence on Mergers and Acquisitions by Small and Medium Enterprises," Working Papers 09-21, Utrecht School of Economics. [Downloadable!]
  14. Michael McCann, 2004. "Motives for Acquisitions in the UK," Working Papers 2004/1, Nottingham Trent University, Nottingham Business School, Economics Division. [Downloadable!]
  15. Bessière, Véronique, 1999. "Offres publiques, pouvoir de négociation et partage des synergies," Accepted Papers Series 1999-1, Montpellier University, Center for Research in Finance. [Downloadable!]
  16. Bessière, Véronique, 1999. "Tender offers and gains division : an analysis of the bidder’s bargaining power," Accepted Papers Series 1999-1, Montpellier University, Center for Research in Finance. [Downloadable!]
  17. Sven-Olof Fridolfsson & Johan Stennek, 2001. "Why Mergers Reduce Profits and Raise Share Prices: A Theory of Preemptive Mergers," CIG Working Papers FS IV 01-26, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
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  18. Vijay B. Gondhalekar & R. Raymond Sant & Stephen P. Ferris, 2004. "The price of corporate acquisition: determinants of cash takeover premia," Applied Economics Letters, Taylor and Francis Journals, vol. 11(12), pages 735-739, October. [Downloadable!] (restricted)
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