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Hostility in Takeovers: In the Eyes of the Beholder?

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  • G. William Schwert

Abstract

This paper examines whether hostile takeovers can be distinguished from friendly takeovers, empirically, based on accounting and stock performance data. Much has been made of this distinction in both the popular and the academic literature, where gains from hostile takeovers are typically attributed to the value of replacing incumbent managers and the gains from friendly takeovers are typically attributed to strategic synergies. Alternatively, hostility could reflect just a perceptual distinction arising from different patterns of public disclosure, where negotiated outcomes are the rule and transactions tend to be characterized as friendly when bargaining remains undisclosed throughout, and hostile when the public becomes aware of the negotiation before its resolution. Empirical tests show that most deals described as hostile in the press are not distinguishable from friendly deals in economic terms, and that negotiations are publicized earlier in hostile transactions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7085.

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Date of creation: Apr 1999
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Publication status: published as Schwert, G. William. "Hostility In Takeovers: In The Eyes Of The Beholder?," Journal of Finance, 2000, v55(6,Dec), 2599-2640.
Handle: RePEc:nbr:nberwo:7085

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  1. Robert Comment & G. William Schwert, 1993. "Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures," NBER Working Papers 4316, National Bureau of Economic Research, Inc.
  2. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1988. "Characteristics of Targets of Hostile and Friendly Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 101-136 National Bureau of Economic Research, Inc.
  3. Palepu, Krishna G., 1986. "Predicting takeover targets : A methodological and empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 3-35, March.
  4. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110.
  5. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
  6. Randall Morck & Andrel Shleifer & Robert W. Vishny, 1988. "Alternative Mechanisms for Corporate Control," University of Chicago - George G. Stigler Center for Study of Economy and State 52, Chicago - Center for Study of Economy and State.
  7. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
  8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  9. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351.
  10. Schwert, G.W., 1994. "Mark-up Pricing in Mergers and Acquisitions," Papers 95-01, Rochester, Business - Financial Research and Policy Studies.
  11. Uma V. Sridharan & Marc R. Reinganum, 1995. "Determinants of the Choice of the Hostile Takeover Mechanism: An Empirical Analysis of Tender Offers and Proxy Contests," Financial Management, Financial Management Association, vol. 24(1), Spring.
  12. Mikkelson, Wayne H. & Partch, M. Megan, 1989. "Managers' voting rights and corporate control," Journal of Financial Economics, Elsevier, vol. 25(2), pages 263-290, December.
  13. Chan, Louis K. C. & Jegadeesh, Narasimhan & Lakonishok, Josef, 1995. "Evaluating the performance of value versus glamour stocks The impact of selection bias," Journal of Financial Economics, Elsevier, vol. 38(3), pages 269-296, July.
  14. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
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