This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results indicate that the market for corporate control disciplines poorly performing companies, and that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of over 20%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free cash-flow theory of takovers.
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Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number
9803.
Length: Date of creation: Jan 1998 Date of revision: Handle: RePEc:ukc:ukcedp:9803
Contact details of provider: Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP Phone: +44 (0)1227 764000 Fax: +44 (0)1227 827850 Web page: http://www.ukc.ac.uk/economics/
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Find related papers by JEL classification: L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance G3 - Financial Economics - - Corporate Finance and Governance C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Schnitzer, Monika, 1996.
"Hostile versus Friendly Takeovers,"
Economica,
London School of Economics and Political Science, vol. 63(249), pages 37-55, February.
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