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Takeover Risk and the Market for Corporate Control: The Experience of British Firms in the 1970s and 1980s

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  • Andrew P. Dickerson

    ()

  • Heather D. Gibson
  • Euclid Tsakalotos

    ()

Abstract

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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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9803.

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Date of creation: Jan 1998
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Handle: RePEc:ukc:ukcedp:9803

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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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Keywords: Takovers; Market for Corporate Control; Hazard Functions;

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References

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Citations

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Cited by:
  1. Eleni Angelopoulou & Heather D. Gibson, 2007. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK," Working Papers 53, Bank of Greece.
  2. Robin Nuttall, 1999. "Takeover Likelihood Models for UK Quoted Companies," Economics Series Working Papers 1999-W06, University of Oxford, Department of Economics.
  3. Robin Nuttall, 1999. "An Empirical Analysis of the Effects of the Threat of Takeover on UK Company Performance," Economics Series Working Papers 1999-W05, University of Oxford, Department of Economics.
  4. Panayotis Kapopoulos & Sophia Lazaretou, 2007. "Corporate Ownership Structure and Firm Performance: evidence from Greek firms," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 144-158, 03.
  5. Heather D Gibson & Euclid Tsakalotos, 2003. "Capital Flows and Speculative Attacks in Prospective EU Member States," Working Papers 06, Bank of Greece.
  6. Kastrinaki, Zafeira & Stoneman, Paul, 2012. "The drivers of merger waves," Economics Letters, Elsevier, vol. 117(2), pages 493-495.
  7. Andy Cosh & Alan Hughes, 2008. "Takeovers after "Takeovers"," ESRC Centre for Business Research - Working Papers wp363, ESRC Centre for Business Research.

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