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Is Attack the Best form of Defence? A Competing Risks Analysis of Acquisition Activity in the UK

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  • Andrew P. Dickerson

    ()

  • Heather D. Gibson
  • Euclid Tsakalotos

    ()

Abstract

The primary purpose of this paper is to investigate whether companies can use acquisition as a strategy to reduce their probability of takeover. A subsidiary issue is whether such a strategy has any impact on their subsequent probability of bankruptcy. The determinants of making an acquisition, being taken over, and bankruptcy are modelled within a competing risks framework using two large samples of UK manufacturing companies. Our results indicate that, ceteris paribus, companies which make acquisitions can significantly reduce their conditional probability of being taken over, largely through the impact that acquisition has on corporate size. In this sense, attack, through acquisition, is the best form of defence, against takeover.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/9907.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9907.

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Date of creation: May 1999
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Handle: RePEc:ukc:ukcedp:9907

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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: Takeovers; Acquisitions; Bankruptcy; Competing Risks;

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References

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  1. Shleifer, Andrei & Vishny, Robert W, 1988. "Value Maximization and the Acquisition Process," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 7-20, Winter.
  2. Bruce D. Meyer, 1991. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  3. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-38, February.
  4. Han, Aaron & Hausman, Jerry A, 1990. "Flexible Parametric Estimation of Duration and Competing Risk Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 1-28, January-M.
  5. Narendranathan, Wiji & Stewart, Mark B, 1991. "Simple Methods for Testing for the Proportionality of Cause-Specific Hazards in Competing Risk Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(3), pages 331-40, August.
  6. Ham, John C & Rea, Samuel A, Jr, 1987. "Unemployment Insurance and Male Unemployment Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 325-53, July.
  7. Altman, Edward I., 1984. "The success of business failure prediction models : An international survey," Journal of Banking & Finance, Elsevier, vol. 8(2), pages 171-198, June.
  8. Dickerson, Andrew P & Gibson, Heather D & Tsakalotos, Euclid, 1997. "The Impact of Acquisitions on Company Performance: Evidence from a Large Panel of UK Firms," Oxford Economic Papers, Oxford University Press, vol. 49(3), pages 344-61, July.
  9. Franks, Julian & Mayer, Colin, 1996. "Hostile takeovers and the correction of managerial failure," Journal of Financial Economics, Elsevier, vol. 40(1), pages 163-181, January.
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  12. Schiantarelli, Fabio, 1996. "Financial Constraints and Investment: Methodological Issues and International Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 70-89, Summer.
  13. 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.
  14. Dickerson, Andrew P & Gibson, Heather D & Tsakalotos, Euclid, 1998. "Takeover Risk and Dividend Strategy: A Study of UK Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 281-300, September.
  15. Lindeboom, Maarten & Theeuwes, Jules, 1991. "Job Duration in the Netherlands: The Co-existence of High Turnover and Permanent Job Attachment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(3), pages 243-64, August.
  16. Bond, Stephen & Meghir, Costas, 1994. "Dynamic Investment Models and the Firm's Financial Policy," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 197-222, April.
  17. 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.
  18. Narendranathan, W. & Stewart, M.B., 1989. "Modelling The Probability Of Leaving Unemployment: Competing Risks Models With Flexible Baseline Hazards," The Warwick Economics Research Paper Series (TWERPS) 331, University of Warwick, Department of Economics.
  19. Dambolena, Ismael G & Khoury, Sarkis J, 1980. " Ratio Stability and Corporate Failure," Journal of Finance, American Finance Association, vol. 35(4), pages 1017-26, September.
  20. Andrew P. Dickerson & Heather D. Gibson & Euclid Tsakalotos, 1997. "Deterring Takeover: Evidence from a Large Panel of UK Firms," Studies in Economics 9707, Department of Economics, University of Kent.
  21. Aaronovitch, Sam & Sawyer, Malcolm C, 1975. "Mergers, Growth, and Concentration," Oxford Economic Papers, Oxford University Press, vol. 27(1), pages 136-55, March.
  22. Dolton, Peter J & van der Klaauw, Wilbert, 1995. "Leaving Teaching in the UK: A Duration Analysis," Economic Journal, Royal Economic Society, vol. 105(429), pages 431-44, March.
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Citations

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Cited by:
  1. Andy Cosh & Alan Hughes, 2008. "Takeovers after "Takeovers"," ESRC Centre for Business Research - Working Papers wp363, ESRC Centre for Business Research.
  2. Alessandra Amendola & Marialuisa Restaino & Luca Sensini, 2013. "Corporate Financial Distress And Bankruptcy: A Comparative Analysis In France, Italy And Spain," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences & Institute for World Economy of the Romanian Academy, vol. 1(2), pages 131-142, November.
  3. repec:ntu:ntugeo:vol1-iss2s-13-131 is not listed on IDEAS
  4. Dimara, Efthalia & Tzelepis, Dimitris & Skuras, Dimitris, 2000. "Regional Development Incentives And Firm Survival: A Case Study Of The Greek Food Sector," ERSA conference papers ersa00p209, European Regional Science Association.
  5. Eleni Angelopoulou & Heather D. Gibson, 2007. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK," Working Papers 53, Bank of Greece.

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