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Corporate Inefficiency and the Risk of Takeover

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Author Info
Trimbath, S.
Frydman, H.
Frydman, R.
Abstract

The present study, using the Cox proportional hazard model, suggests a firm faces a significantly higher risk of takeover if its cost performance lags behind its industry benchmark. The effects of variables capturing cost inefficiency on the risk of takeover appear to be remarkably stable over the nearly two decades spanned by the sample, while the effect of the variables measuring the risk-size relationship indicate temporal changes. Once cost inefficiency is accounted for, the paper fails to find consistent evidence for the effects of other conventionally used performance measures, such as profitability and q, on the risk of takeover.

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File URL: http://econ.as.nyu.edu/docs/IO/9188/RR00-14.PDF
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 00-14.

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Length: 45 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:cvs:starer:00-14

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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models

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  1. Billett, Matthew T, 1996. "Targeting Capital Structure: The Relationship between Risky Debt and the Firm's Likelihood of Being Acquired," Journal of Business, University of Chicago Press, vol. 69(2), pages 173-92, April. [Downloadable!] (restricted)
  2. Singh, Ajit, 1975. "Take-Overs, Economic Natural Selection, and the Theory of the Firm: Evidence from the Postwar United Kingdom Experience," Economic Journal, Royal Economic Society, vol. 85(339), pages 497-515, September. [Downloadable!] (restricted)
  3. Hasbrouck, Joel, 1985. "The characteristics of takeover targets and other measures," Journal of Banking & Finance, Elsevier, vol. 9(3), pages 351-362, September. [Downloadable!] (restricted)
  4. Ambrose, Brent W. & Megginson, William L., 1992. "The Role of Asset Structure, Ownership Structure, and Takeover Defenses in Determining Acquisition Likelihood," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 575-589, December. [Downloadable!]
  5. Grosfeld, I. & Roland, G., 1995. "Defensive and Strategic Restructuring in Central European Enterprises," DELTA Working Papers 95-18, DELTA (Ecole normale supérieure).
    Other versions:
  6. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-52, September. [Downloadable!] (restricted)
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  7. Dickerson, Andrew P & Gibson, Heather D & Tsakalotos, Euclid, 1998. "Takeover Risk and Dividend Strategy: A Study of UK Firms," Journal of Industrial Economics, Blackwell Publishing, vol. 46(3), pages 281-300, September. [Downloadable!] (restricted)
  8. Ronan G. Powell, 1997. "Modelling Takeover Likelihood," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 24(7&8), pages 1009-1030. [Downloadable!] (restricted)
  9. David Neumark & Steven A. Sharpe, 1994. "Rents and quasi-rents in the wage structure: evidence from hostile takeovers," Finance and Economics Discussion Series 94-6, Board of Governors of the Federal Reserve System (U.S.).
  10. Cudd, Mike & Duggal, Rakesh, 2000. "Industry Distributional Characteristics of Financial Ratios: An Acquisition Theory Application," The Financial Review, Eastern Finance Association, vol. 35(1), pages 105-20, February.
  11. John G. Matsusaka, 1993. "Takeover Motives during the Conglomerate Merger Wave," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 357-379, Autumn. [Downloadable!] (restricted)
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