The Pre‐announcement Share Price Behaviour of Uk Takeover Targets

Abstract

This paper examines the sources of pre‐bid announcement abnormal returns (ARs) accruing to target companies’ shareholders. To control for publicly available information, targets are classified as either identified or unidentified. The paper finds that prior disclosure of bid related information does give rise to pre‐bid ARs. For identified targets there is no evidence that these ARs arise from trading on unpublished price sensitive information. For unidentified targets, trading on unpublished price sensitive information may give rise to ARs, although these ARs could be explained by stakebuilding. ARs do not occur prior to the first bid news item, a result contrary to previous US studies.

Do Golden Parachutes increase CEO’s DESIRE to be taken over? empirical evidence from australia and united states

“…To the contrary, Holland and Hodgkinson (1994) found that past performance has no effect on takeover likelihood in the UK. Similarly, Alcade and Espitia (2003) found no support for the view that acquisitions exist to replace incumbent managers in Spanish companies.…”

“…Over the last decade or so only 18 per cent of the takeovers were hostile (Hartzell, et al, 2004), which indicate that most of the takeovers do require support of the incumbent managers to progress. Furthermore, empirical evidence show that acquisitions have largely benefited target companies shareholders (Loughran and Vijh, 1997;Holland and Hodgkinson, 1994) and therefore, by resisting takeover attempts, CEOs can cost acquiring shareholders significant acquisition premiums. Minimizing the cost of the conflict between a CEOs desire to keep their job and shareholders' wealth maximisation is one of the major reason for the existence of golden parachutes.…”

“…Palepu (1986), Holland and Hodgkinson (1994), Powell and Thomas (1994), Lehn and Poulsen (1989) all promote the notion that 'resource rich firms' are more attractive takeover targets. Mergers and acquisitions are often very costly and if firms' that are acquired have large resources available, it can be used to recoup some of the costs of the acquisition.…”

“…First, the value of the CEOs shareholdings is multiplied by an expected equity premium of 22 per cent based on findings reported Loughran and Vijh (1997) and Holland and Hodgkinson (1994). Second, existing golden parachutes values are then added and are taken at their expected value as found in SEC filings for the US companies or annual report for Australian firms.…”

“…First, most studies relating to mergers and acquisitions argue from the acquiring firm's viewpoint, that is, whether acquisitions are a wise investment or they simply exist to increase the acquiring CEOs power (see Holland and Hodgkinson, 1994;Andrade, Mitchell & Stafford, 2001). However, the research question that we propose "Do golden parachutes increase CEO's desire for their firms to be taken over?"…”