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An Empirical Analysis of the Effects of the Threat of Takeover on UK Company Performance

  • Robin Nuttall
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    This paper undertakes an empirical analysis of the effects of the threat of takeover on company performance, based on a panel of 643 nonfinancial quoted UK companies over the period 1989-96. Our measure of the intensity of the threat of takeover is the predicted probability of takeover estimated recursively from a takeover likelihood model. This measure is used as an explanatory variable in models of total factor productivity, investment and dividends. We find that takeover risk has a positive and significant effect on subsequent productivity, a negative and significant effect on investment, and a positive but insignificant effect on current dividend payout. The probability of hostile takeover has little effect on productivity, but has a negative and significant effect investment with a lag of two years, and a strongly positive effect on dividend payout. The probability of friendly takeover has similar effects to the aggregate takeover risk. These results are partially consistent with both a disciplinary view of takeovers and with a short-termism view.

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    File URL: http://www.nuff.ox.ac.uk/economics/papers/1999/w5/paper4.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 1999-W05.

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    Date of creation: 01 Feb 1999
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    Handle: RePEc:oxf:wpaper:1999-w05
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