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Toeholds and takeover probability: implications for investment strategies

Author

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  • J. Samuel Baixauli
  • Matilde O. Fernández

Abstract

Purpose - The purpose of this paper is to propose various toehold indicators and analyse whether the models incorporating these indicators can be used to establish investment strategies. Design/methodology/approach - Logistic regression is used to test toehold indicator significance. Findings - The results reflect that the designed measures are positively correlated to the likelihood of launching a takeover, although the power of the models to predict out‐sample takeovers is moderate, between 60.71 percent and 71.59 percent. The indicators allow us to design strategies which offer positive abnormal returns. In particular, abnormal return over the Fama‐French factors is 0.5 percent. Originality/value - Toeholds are used to initiate takeover processes. As previous studies have indicated, a toehold increases the likelihood of success in a tender offer. Nevertheless, the studies on takeover prediction do not include the toehold since it is a variable which is unobservable prior to the announcement of a takeover bid.

Suggested Citation

  • J. Samuel Baixauli & Matilde O. Fernández, 2009. "Toeholds and takeover probability: implications for investment strategies," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 26(2), pages 69-86, June.
  • Handle: RePEc:eme:sefpps:v:26:y:2009:i:2:p:69-86
    DOI: 10.1108/10867370910963019
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    Cited by:

    1. Farida Akhtar, 2016. "The probability of a firm making a takeover bid: An empirical analysis of Australian firms," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 27-54, February.

    More about this item

    Keywords

    Take‐overs; Return on investment;

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