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Toeholds and takeover probability: implications for investment strategies


  • J. Samuel Baixauli
  • Matilde O. Fernández


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, vol. 26(2), pages 69-86, June.
  • Handle: RePEc:eme:sefpps:v:26:y:2009:i:2:p:69-86

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    Take-overs; Return on investment;


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