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Failed Takeovers, Methods of Payment, and Bidder Returns

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  • Chang, Saeyoung
  • Suk, David Y

Abstract

This study documents bidding-firm stock returns upon the announcement of takeover terminations. On average, bidding firms that offer common stock experience a positive abnormal return, and firms that offer cash experience a negative abnormal return. The positive performance is primarily driven by bidders initiating the takeover termination. Common-stock-financed bidders earn a return not significantly different from that earned by cash-financed bidders when terminations are initiated by the target firm. The results are consistent with the asymmetric information hypothesis, that the decision not to issue common stock conveys favorable information to the market. In addition, bidder returns at takeover termination are positively related to the amount of undistributed cash flow, supporting the free cash flow hypothesis. Copyright 1998 by MIT Press.

Suggested Citation

  • Chang, Saeyoung & Suk, David Y, 1998. "Failed Takeovers, Methods of Payment, and Bidder Returns," The Financial Review, Eastern Finance Association, vol. 33(2), pages 19-34, May.
    • Handle: RePEc:bla:finrev:v:33:y:1998:i:2:p:19-34
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    Cited by:

    1. Wolfgang Bessler & Colin Schneck, 2015. "Excess premium offers and bidder success in European takeovers," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 23-62, June.
    2. Jeff Madura & Thanh Ngo, 2012. "Re-examination of industry effects due to withdrawn mergers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(3), pages 613-633, July.
    3. Caiazza, Stefano & Pozzolo, Alberto Franco, 2016. "The determinants of failed takeovers in the banking sector: Deal or country characteristics?," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 92-103.
    4. Monaco, Eleonora & Ibikunle, Gbenga & Palumbo, Riccardo & Zhang, Zeyu, 2022. "The liquidity and trading activity effects of acquisition payment methods: Evidence from the announcements of private firms' acquisitions," International Review of Financial Analysis, Elsevier, vol. 82(C).
    5. Jacobsen, Stacey, 2014. "The death of the deal: Are withdrawn acquisition deals informative of CEO quality?," Journal of Financial Economics, Elsevier, vol. 114(1), pages 54-83.

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