Corporate Takeovers in Malaysia: Discriminant Analysis for Bidder and Target Firms

Mergers, acquisitions and takeovers are world wide phenomenon and Malaysia is no exception. The first wave of these took off in late 1970s and early 1980s and it is a buzz word unde the current economic trouble. One of the issues to be settled here is which firms act as the bidders and which ones as the targets. The discriminant analysis provides a useful tool for explaining this classification. The paper looks into 144 non-financial firms in Malaysia for period 1980-1993, which includes bidders, targets, control bidders and control targets. A set of five economic/financial variables has been identified to discriminate between the firm’s groupings using publicly available time seried data. The empirical findings suggest that the (a) five predictive variables account for about 90% of the firms’ groupings, (b) financial leverage is the most powerful discriminatory variable followed by profit, risk, size, and growth, in that order, (c) bidder firms have higher profit and growth, and lower leverage, risk and size, than the target firms, and accordingly provide some support that, (d) the takeover was motivated by the bidder firms’ desire for reaping the fruits of economies of scale in order to maintain the tempo of high profit and high growth and/or for displacement of inefficient managers of target firms. These results are corroborated by the logistic regression model.