Are Corporate Restructuring Events Driven By Common Factors? Implications for Takeover Prediction

24 Pages Posted: 15 Oct 2007

See all articles by Ronan Powell

Ronan Powell

University College Dublin (UCD) - Michael Smurfit Graduate School of Business

Alfred Yawson

University of Adelaide; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: 2007-01

Abstract

The paper shows that variables commonly used in takeover prediction models also help to explain the likelihood of several other restructuring events, including divestitures, bankruptcies and significant employee layoffs. This finding helps to explain the larger misclassification errors in binomial takeover prediction models commonly used in prior research. The results show that modeling takeover prediction models in a binomial setting is likely to lead to misspecification in the parameter estimates and, further, result in erroneous conclusions about the determinants of takeover likelihood. The paper shows that controlling for other restructuring events by using a multinomial framework results in consistently lower misclassification errors in out-of-sample prediction tests, when compared to the benchmark of a typical binomial model.

Suggested Citation

Powell, Ronan G. and Yawson, Alfred, Are Corporate Restructuring Events Driven By Common Factors? Implications for Takeover Prediction (2007-01). Journal of Business Finance & Accounting, Vol. 34, Issue 7-8, pp. 1169-1192, September/October 2007, Available at SSRN: https://ssrn.com/abstract=1020812 or http://dx.doi.org/10.1111/j.1468-5957.2007.02028.x

Ronan G. Powell (Contact Author)

University College Dublin (UCD) - Michael Smurfit Graduate School of Business ( email )

Blackrock, Co. Dublin
Ireland

Alfred Yawson

University of Adelaide ( email )

No 233 North Terrace
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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