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Takeovers, Shareholder Returns, and the Theory of the Firm

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  • Michael Firth

Abstract

The paper examines recent merger and takeover activity in the United Kingdom. Specifically, the impact of takeovers on shareholder returns and management benefits is analyzed, and some implications for the theory of the firm are drawn from the results. The research showed that mergers and takeovers resulted in benefits to the acquired firms' shareholders and to the acquiring companies' managers, but that losses were suffered by the acquiring companies' shareholders. The results are consistent with takeovers being motivated more by maximization of management utility reasons, than by the maximization of shareholder wealth.

Suggested Citation

  • Michael Firth, 1980. "Takeovers, Shareholder Returns, and the Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 235-260.
  • Handle: RePEc:oup:qjecon:v:94:y:1980:i:2:p:235-260.
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    File URL: http://hdl.handle.net/10.2307/1884539
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    Cited by:

    1. repec:bla:jindec:v:65:y:2017:i:2:p:336-362 is not listed on IDEAS
    2. Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
    3. Firth, Michael, 1997. "Takeovers in New Zealand: Motives, stockholder returns, and executive share ownership," Pacific-Basin Finance Journal, Elsevier, vol. 5(4), pages 419-440, September.
    4. Rahaman, Mohammad M., 2014. "Do managerial behaviors trigger firm exit? The case of hyperactive bidders," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 92-110.
    5. Dionysios Polemis & Thanasis Karlis, 2016. "Measuring Post-Merger and Acquisition Performance of Corporations in the Maritime Transport Sector," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 66(3), pages 83-93, July-Sept.
    6. Meinshausen, Steffen & Schiereck, Dirk, 2011. "Dressed to merge — small fits fine: M&A success in the fashion and accessories industry," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 283-291.
    7. Jeffrey T. Prince & Daniel H. Simon, 2014. "The Impact of Mergers on Quality Provision: Evidence from the Airline Industry," Working Papers 2014-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    8. Tao, Fang & Liu, Xiaohui & Gao, Lan & Xia, Enjun, 2017. "Do cross-border mergers and acquisitions increase short-term market performance? The case of Chinese firms," International Business Review, Elsevier, vol. 26(1), pages 189-202.
    9. E. Diecidue & J. van de Ven & U. Weitzel, 2008. "Shareholders’ expectations, aspiration levels, and mergers," Working Papers 08-06, Utrecht School of Economics.
    10. Du, Min & Boateng, Agyenim, 2015. "State ownership, institutional effects and value creation in cross-border mergers & acquisitions by Chinese firms," International Business Review, Elsevier, vol. 24(3), pages 430-442.
    11. Chan, Alex W.H. & Cheung, Hoi Yan, 2016. "Extraversion, individualism and M&A activities," International Business Review, Elsevier, vol. 25(1), pages 356-369.
    12. Joshua Porter & Harminder Singh, 2010. "What Factors Drive Takeovers in Australia?," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 9(2), pages 87-103, August.
    13. Andy Cosh & Alan Hughes, 2008. "Takeovers after "Takeovers"," Working Papers wp363, Centre for Business Research, University of Cambridge.
    14. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    15. Julian Franks & Colin Mayer, 2002. "Governance as a source of managerial discipline," Working Paper Research 31, National Bank of Belgium.
    16. Campa, Jose M. & Hernando, Ignacio, 2002. "Value creation in European M&As," IESE Research Papers D/471, IESE Business School.
    17. Hutson, Elaine, 2000. "Takeover targets and the probability of bid success: Evidence from the Australian market," International Review of Financial Analysis, Elsevier, vol. 9(1), pages 45-65, February.
    18. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    19. Bhabra, Harjeet S. & Huang, Jiayin, 2013. "An empirical investigation of mergers and acquisitions by Chinese listed companies, 1997–2007," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 186-207.
    20. Jorge Farinha & Francisco Miranda, 2003. "Run-up, toeholds, and agency effects in mergers and acquisitions: evidence from an emerging market," CEF.UP Working Papers 0311, Universidade do Porto, Faculdade de Economia do Porto.
    21. José Manuel Campa & Ignacio Hernando, 2002. "Value creation in European M&As," Working Papers 0223, Banco de España;Working Papers Homepage.
    22. Terence Tse & Khaled Soufani, 2001. "Wealth Effects of Takeovers in Merger Activity Eras: Empirical Evidence from the UK," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(3), pages 365-377.
    23. Budzinski, Oliver & Kretschmer, Jürgen-Peter, 2015. "Unprofitable horizontal mergers, external effects, and welfare," Ilmenau Economics Discussion Papers 96, Ilmenau University of Technology, Institute of Economics.
    24. repec:ssi:jouesi:v:1:y:2013:i:2:p:81-91 is not listed on IDEAS
    25. Hubert De La Bruslerie & Heger Gabteni, 2010. "Voluntary financial disclosure, the introduction of IFRS and long-term communication policy: An empirical test on French firms," Post-Print halshs-00636602, HAL.

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