Corporate Takeovers

HANDBOOK OF CORPORATE FINANCE: EMPIRICAL CORPORATE FINANCE, Vol. 2, Chapter 15, pp. 291-430, B. E., Eckbo, ed., Elsevier/North-Holland Handbook of Finance Series, 2008

Tuck School of Business Working Paper No. 2008-47

172 Pages Posted: 12 May 2008 Last revised: 15 Jan 2009

Sandra Betton

Concordia University, Quebec - Department of Finance

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Karin S. Thorburn

Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Abstract

This essay surveys the recent empirical literature and adds to the evidence on takeover bids for U.S. targets, 1980-2005. The availability of machine readable transaction databases have allowed empirical tests based on unprecedented sample sizes and detail. We review both aggregate takeover activity and the takeover process itself as it evolves from the initial bid through the final contest outcome. The evidence includes determinants of strategic choices such as the takeover method (merger v. tender offer), the size of opening bids and bid jumps, the payment method, toehold acquisition, the response to target defensive tactics and regulatory intervention (antitrust), and it offers links to executive compensation. The data provides fertile grounds for tests of everything ranging from signaling theories under asymmetric information to strategic competition in product markets and to issues of agency and control. The evidence is supportive of neoclassical merger theories. For example, regulatory and technological changes, and shocks to aggregate liquidity, appear to drive out market-to-book ratios as fundamental drivers of merger waves. Despite the market boom in the second half of the 1990s, the proportion of all-stock offers in more than 13,000 merger bids did not change from the first half of the decade. While some bidders experience large losses (particularly in the years 1999 and 2000), combined value-weighted announcement-period returns to bidders and targets are significantly positive on average. Long-run post-takeover abnormal stock returns are not significantly different from zero when using a performance measure that replicates a feasible portfolio trading strategy. There are unresolved econometric issues of endogeneity and self-selection.

Keywords: Takeover, merger, tender offer, auction, offer premium, bidder gains, toeholds, markups

JEL Classification: G34

Suggested Citation

Betton, Sandra and Eckbo, B. Espen and Thorburn, Karin S., Corporate Takeovers. HANDBOOK OF CORPORATE FINANCE: EMPIRICAL CORPORATE FINANCE, Vol. 2, Chapter 15, pp. 291-430, B. E., Eckbo, ed., Elsevier/North-Holland Handbook of Finance Series, 2008; Tuck School of Business Working Paper No. 2008-47. Available at SSRN: https://ssrn.com/abstract=1131033

Sandra Betton

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada
514-848-2783 (Phone)
514-848-4500 (Fax)

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)

HOME PAGE: http://www.tuck.dartmouth.edu/eckbo

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Karin S. Thorburn

Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway
+4755959283 (Phone)

HOME PAGE: http://www.nhh.no/cv/thorburn

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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