Takeover risk and the market for corporate control: the experience of British firms in the 1970s and 1980s

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in EconStor may TAKEOVER RISK AND THE MARKET FOR CORPORATE CONTROL: THE EXPERIENCE OF BRITISH FIRMS IN THE 1970S AND 1980SAndrew P Dickerson †, Heather D Gibson ‡# and Euclid Tsakalotos# January 1998 Abstract This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results indicate that the market for corporate control disciplines poorly performing companies, and that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of over 20%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free cash-flow theory of takeovers.JEL Classification: L1, G3, C41

Does patenting increase the probability of being acquired? Evidence from cross-border and domestic acquisitions

“…The empirical evidence for this idea is, however, somewhat mixed. Powell (1997) finds, for example, that free cash flow do not have statistically significant impact on the likelihood of takeover (see also Dickerson, Gibson and Tsakalotos, 2002). In this study, the ratio of cash flow to total assets is used to proxy "free cash flow".…”

“…The inefficient management explanation of the M&A-activity encompasses at least two prominent but related ideas (see Palepu 1986 andDickerson, Gibson andTsakalotos, 2002). We take each of them in turn:…”

“…No general conclusion can, however, be drawn on the effects of the profitability (see Palepu, 1986, Dickerson, Gibson andTsakalotos, 2002). In this study, we use the return on investment, denoted ROI, to proxy managerial performance.…”

“…Other factors that typically vary systematically by industry are firm size, tangible assets (as a proportion of total assets), and growth opportunities (see also Dickerson, Gibson and Tsakalotos 2002). Because these variables may capture explanations for the M&A-activity on and above their association with specific industries, we briefly consider each of them in turn:…”

“…Palepu 1986, Berger andOfek 1996), while others have found the opposite relation (see e.g. Dickerson, Gibson and Tsakalotos 2002). To test for the firm size effects we include the logarithm of total assets to control for the effects of the size of a firm.…”