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Managerial Performance, Bid Premiums, and the Characteristics of Takeover Targets

  • Chao Chen

    (Center for China Finance and Business Research and Department of Finance, California State University
    School of Economics and Management, Tsinghua University)

  • Philippe Cornu

    (Department of Finance, University of Geneva)

Registered author(s):

    This paper tests the inefficient performance hypothesis and the pre-bid runup premium hypothesis of hostile takeovers. The long-term and short-term performance and the characteristics of friendly and hostile takeovers are compared. We find no indications of poor target performance over the five years prior to the takeover announcement. However, there is evidence that hostile takeovers do perform a correction for target managerial failure. This paper also finds that the type of offer is strongly related to the general trend of the M&A market and the size, and industry of the target firm. Higher takeover premiums and cash offers are more often associated with hostile offers. Moreover, the odds for hostile offers to incur competition among bidders and to be unsuccessful are significantly higher than that for friendly offers.

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    Article provided by Society for AEF in its journal Annals of Economics and Finance.

    Volume (Year): 3 (2002)
    Issue (Month): 1 (May)
    Pages: 67-84

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    Handle: RePEc:cuf:journl:y:2002:v:3:i:1:p:67-84
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    1. G. William Schwert, 1994. "Mark-Up Pricing in Mergers and Acquisitions," NBER Working Papers 4863, National Bureau of Economic Research, Inc.
    2. G. William Schwert, 1999. "Hostility in Takeovers: In the Eyes of the Beholder?," NBER Working Papers 7085, National Bureau of Economic Research, Inc.
    3. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    4. Walkling, Ralph A., 1985. "Predicting Tender Offer Success: A Logistic Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 461-478, December.
    5. 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.
    6. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
    7. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    8. 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.
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