Interfirm Tender Offers and the Market for Corporate Control

Bradley, Michael

doi:10.1086/296114

Cited by 380 publications

(163 citation statements)

References 2 publications

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“…In this case the threat of defensive actions increases the bids and can thus increase the probability of takeover success. Overbidding in some acquisitions is consistent with the evidence of Bradley (1980) that the posttakeover value of those shares not tendered is on average lower than the tender price.27 large enough to outweigh the costs of tendering. Here, with shareholders just indifferent, the willingness to tender is infinitely elastic with respect to the bid, so the compensation in tendering probabilities is brought about without any rise in the bid at all.…”

Section: P(x) = T(x)u(x) (16)supporting

confidence: 75%

Share Tendering Strategies and the Success of Hostile Takeover Bids

Hirshleifer¹,

Titman²

1990

Journal of Political Economy

218

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Section: P(x) = T(x)u(x) (16)supporting

confidence: 75%

Share Tendering Strategies and the Success of Hostile Takeover Bids

Hirshleifer¹,

Titman²

1990

Journal of Political Economy

218

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“…First, the importance of new blockholders is demonstrated. Prior research suggests that the ex ante level of stock ownership concentration and its division between management and outsiders is important in determining the likelihood of a takeover (see Manne, 1965;Bradley, 1980;Grossman and Hart, 1980;Shleifer and Vishny, 1986;Harris and Raviv, 1988;Stulz, 1988). In this research, the ex post changes in ownership concentration are important to the ultimate contest outcome.…”

Section: Introductionmentioning

confidence: 99%

The influence of professional investors on the failure of management buyout attempts

Peck

1996

Journal of Financial Economics

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In a sample of 111 MBO offers between 1984 and 1987, almost 30% attract new blockholders. These blockholders are primarily professional investors who act to facilitate a takeover by a higher bidder, thus increasing returns to both themselves and other public shareholders. In contrast, I find little evidence that pre-existing blockholders, particularly institutional holders, affect either the offer outcome or actively participate in the buyout contest once it begins. The overall pattern of results suggests that professional investors, particularly equity-holding companies, are 'control specialists' who provide valuable services as brokers in the market for corporate control.

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“…Their model makes the implicit assumption that deviations from fundamental values are economically significant. Our findings suggest that high-book-to-market "fallen angels" within industries are not necessarily obvious takeover targets based on their valuations alone, because the average take-over premium and other transaction costs are an order of magnitude higher than the mispricing we detect (Bradley, 1980). At minimum, our results suggest that empirical tests of this valuation motive should carefully estimate the risk-adjusted price-level impact of any return predictability assumed to be due to market inefficiencies.…”

Section: Discussionmentioning

confidence: 58%

The Price is (Almost) Right

Cohen¹,

Polk²,

Vuolteenaho³

2003

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Most previous research tests market efficiency and asset pricing models using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis. In contrast, we measure the ability of a simple risk model and the efficient-market hypothesis to explain the level of stock prices. First, we find that cash-flow betas (measured by regressing firms' earnings on the market's earnings) explain the prices of value and growth stocks well, with a plausible premium.Second, we use a present-value model to decompose the cross-sectional variance of firms' price-tobook ratios into two components due to risk-adjusted fundamental value and mispricing. When we allow the discount rates to vary with cash-flow betas, the variance share of mispricing is negligible. Most previous research uses average abnormal trading profits on dynamic trading strategies to test market efficiency and asset pricing models. The joint hypothesis of the capital asset pricing model (CAPM) and market efficiency is typically rejected by these tests. The economic significance of these rejections is usually evaluated based on Sharpe ratios (average return over return standard deviation) of zero-investment strategies that do not expose the investor to systematic risks. The discovery of economically high Sharpe ratios has lead many to reject the CAPM and efficient-market hypothesis (EMH) as a good approximate description of the stock market. 1 We argue that asset pricing models and market efficiency should be evaluated by their ability to explain stock-price levels, not by their ability to explain the average returns on frequently-rebalanced dynamic trading strategies. The price-level criterion is superior to the Sharpe-ratio criterion for the following reasons. First, although available Sharpe ratios are clearly the main object of interest to a professional money manager, the level of price is more relevant to most other economic decision makers.For example, a corporate manager making a large long-term investment decision cannot engage in a dynamic trading strategy of investing or divesting a small fraction every month, depending on stock-market conditions. Thus, if the price is approximately "right," the impact of the stock market to his/her investment decisions is also likely to be consistent with market efficiency, and the high available Sharpe ratios only an interesting side show.Second, tests of market efficiency that are based on trading profits typically use high-frequency return covariances or betas to adjust for risk. Although such a practice is consistent with jointly testing a sharp null 1 Fama (1970Fama ( , 1991 surveys the empirical literature on testing market efficiency. Daniel, Hirshleifer, and Subrahmanyam (1998) survey the recent evidence on trading strategies that would have produced abnormal profits and high Sharpe ratios. Hansen and Jagannathan (1991) show that in a frictionless rational-expectations model, available Sharpe ratios are related to the variability of marginal utility. MacK...

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Interfirm Tender Offers and the Market for Corporate Control

Cited by 380 publications

References 2 publications

Share Tendering Strategies and the Success of Hostile Takeover Bids

Share Tendering Strategies and the Success of Hostile Takeover Bids

The influence of professional investors on the failure of management buyout attempts

The Price is (Almost) Right

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