Industry Distributional Characteristics of Financial Ratios: An Acquisition Theory Application

Cudd, Mike; Duggal, Rakesh

doi:10.1111/j.1540-6288.2000.tb01409.x

Cited by 61 publications

(49 citation statements)

References 9 publications

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“…Dietrich and Sorenson (1984) also find that the likelihood of being a target is negatively related to size in the U.S. Palepu (1986) provide support for the size, inefficient management, financial leverage and growth-resources imbalance hypotheses. Cudd and Duggal (2000) also provide support for the size hypothesis, the inefficient management hypothesis and the growth-resources imbalance hypothesis for the US. Meador, Church and Rayburn (1996) provide evidence that long-term debt to total assets ratio has a positive effect on M&As.…”

Section: Literature Reviewsupporting

confidence: 53%

The Determinants of Mergers and Acquisitions: Evidence from Turkey

Erdogan¹

2012

IJEF

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This study examines the financial variables that predict the merger and acquisition targets in Turkey. Cox regression with segmented time-dependent covariates is used to determine the factors that predict target companies for mergers and acquisitions. The firms that are analyzed are among the top 500 industrial enterprises in Turkey. We find that a lower pretax profit margin is associated with an increased chance of being a merger or an acquisition target. In addition, the lower the debt ratio, the more likely the firm will be a target for a merger or an acquisition.

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Section: Literature Reviewsupporting

confidence: 53%

The Determinants of Mergers and Acquisitions: Evidence from Turkey

Erdogan¹

2012

IJEF

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“…The latter, can be also interpreted as indication of an anti-acquisition policy. This has been raised in the literature by Dietrich and Sorensen (1984), Cudd and Duggal (2000).…”

mentioning

confidence: 95%

Prediction of distress and identification of potential M&As targets in UK

Polemis

Gounopoulos

2012

Managerial Finance

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Purpose -This study seeks to identify financial characteristics that can be employed to assess and predict corporate financial distress in publicly traded firms quoted in the London Stock Exchange. Design/Methodology/Approach -The model incorporates three existing literatures as an alternative to bankruptcy. The model has two stages: the first stage discriminates financially healthy or distressed firms utilizing Binary Logit Regression while in the second stage with the use of the univariate analysis, firms are further categorized into four possible outcomes: financially healthy, potentially healthy targets and financially distressed or potentially distressed acquisition targets. Findings -It was found that financial distress could be identified even three years prior the event. Moreover, statistical significant differences were found between the four firm sample groups. Research limitations / implications -The vast changing environment and the financial crisis, highlight the need for future research on the area that will consider the world trade implications along with the individual macroeconomic variables of each country. Originality / Value -It is the first time that a model is developed for the United Kingdom to follow the hazard model"s procedure based on recent financial data. Moreover, due to the scope of the analysis, a new version of the latter procedure is employed. A further innovation that makes the produced model unique is its ability to classify a firm into one of several a priori groupings according to the latter"s individual characteristics. This overcomes the limitation of earlier studies that considered only two possible outcomes for firms.

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“…Previous studies used the book value of assets (Ravenscraft and Scherer, 1987;Cudd and Duggal, 2000) or market value of equity (Hasbrouck, 1985;Mørck, Schleifer and Vishny, 1989) in nominal dollars to measure size. The book value of assets may fall with depreciation even though the underlying assets remain in use at the firm.…”

Section: Ex Ante Ex Postmentioning

confidence: 99%

Cost Inefficiency, Size of Firms and Takeovers

Trimbath

Frydman

2001

SSRN Journal

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Abstract. This study, using the Cox proportional hazards model, finds that the risk of takeover rises with cost inefficiency. It also finds that a firm faces a significantly higher risk of takeover if its cost performance lags behind its industry benchmark. Moreover, these findings appear to be remarkably stable over the nearly two decades spanned by the sample. The effect of the variables used to measure the risk-size relationship, however, indicates temporal changes. Lastly, the study presents evidence from fixed-effects models of ex post cost efficiency improvements that support the hypothesis that takeover targets are selected based on the potential for improvement.Key words: corporate finance and governance, mergers, acquisitions, econometric methods, models with panel data, truncated and censored models.JEL Classification: G3, G34, C2, C23, C24Corporate takeovers have been a permanent feature of the American business landscape since the mid-1800s (Pound, 1992). Mergers and acquisitions continue to play an important role in allocating resources in the U.S. economy. The same number of mergers and acquisitions were completed in the first five years of the 1990s-about 23,000-as in the entire previous decade (Mergers and Acquisitions, September-October, 1995). Furthermore, in the peak years of each decade, the value of takeovers equaled about one-fourth of GNP (Fortune, March 2, 1998.)The prominent role of takeovers in reallocating control over capital in the U.S. economy has generated vigorous debate over whether takeovers actually improve efficiency. Two issues dominate the debate: the pre-takeover performance of targets and the post-takeover changes in performance. As discussed in more detail in the next section, earlier studies of the ex ante performance of target firms did not reach a definitive conclusion about the effect of efficiency on the risk of takeover. Moreover, there is no consensus on the ex post effect of takeovers on firm performance.

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Industry Distributional Characteristics of Financial Ratios: An Acquisition Theory Application

Cited by 61 publications

References 9 publications

The Determinants of Mergers and Acquisitions: Evidence from Turkey

The Determinants of Mergers and Acquisitions: Evidence from Turkey

Prediction of distress and identification of potential M&As targets in UK

Cost Inefficiency, Size of Firms and Takeovers

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