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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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  • Dickerson, Andrew P.
  • Gibson, Heather D.
  • Tsakalotos, Euclid

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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  • Dickerson, Andrew P. & Gibson, Heather D. & Tsakalotos, Euclid, 2002. "Takeover risk and the market for corporate control: the experience of British firms in the 1970s and 1980s," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1167-1195, October.
    • Handle: RePEc:eee:indorg:v:20:y:2002:i:8:p:1167-1195
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    2. Kastrinaki, Zafeira & Stoneman, Paul, 2012. "The drivers of merger waves," Economics Letters, Elsevier, vol. 117(2), pages 493-495.
    3. Driver, Ciaran & Grosman, Anna & Scaramozzino, Pasquale, 2020. "Dividend policy and investor pressure," Economic Modelling, Elsevier, vol. 89(C), pages 559-576.
    4. Ali-Yrkkö, Jyrki, . "Essays on the Impacts of Technology Development and R&D Subsidies," ETLA A, The Research Institute of the Finnish Economy, number 43, June.
    5. Andy Cosh & Alan Hughes, 2008. "Takeovers after "Takeovers"," Working Papers wp363, Centre for Business Research, University of Cambridge.
    6. Heather D. Gibson & Euclid Tsakalotos, 2004. "Capital flows and speculative attacks in prospective EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(3), pages 559-586, September.
    7. 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, March.
    8. Eleni Angelopoulou & Heather D. Gibson, 2007. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK," Working Papers 53, Bank of Greece.
    9. Athanasios Tsagkanos & Antonios Georgopoulos & Costas Siriopoulos & Evangelos Koumanakos, 2008. "Identification of Greek Takeover Targets and Coherent Policy Implications," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 180-192, February.
    10. Heather D. Gibson & Euclid Tsakalotos, 2005. "EU Enlargement, ERM II and Lessons from the Southern European countries," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 3(1), pages 41-78.
    11. Robin Nuttall, 1999. "Takeover Likelihood Models for UK Quoted Companies," Economics Series Working Papers 1999-W06, University of Oxford, Department of Economics.
    12. 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.

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    More about this item

    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; Optimal Timing Strategies

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