Stock Market Driven Acquisitions versus the Q Theory of Takeovers - The UK Evidence

XFi Centre for Financial and Investment Working Paper No. 08/05

47 Pages Posted: 30 Oct 2008 Last revised: 4 Oct 2009

XiaoGang BI

Nottingham University Business School

Alan Gregory

University of Exeter - Xfi Centre; University of Exeter Business School

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2009

Abstract

Using a sample of UK mergers and acquisitions from 1985-2004, we show that equity over-valuation appears to play an important role in the determination of financing method. Our results are broadly consistent with the Sheifer and Vishny (2003) theory of market-driven acquisitions rather than a Q-theory explanation. In some contrast to the US results of Dong et al (2006) we find that over-valuation appears to be the more persuasive explanation for acquisition behaviour in the UK, although like them we cannot comprehensively reject a Q-theory explanation. Given the evidence in favour of the Shleifer-Vishny hypothesis, we argue that a selection model is necessary in when investigate the long run performance of acquirers, and present results which indicate that there is some evidence of high-Q acquirers performing better, but only amongst the cash acquirer sub-sample.

JEL Classification: G14, G34

Suggested Citation

BI, XiaoGang and Gregory, Alan, Stock Market Driven Acquisitions versus the Q Theory of Takeovers - The UK Evidence (June 1, 2009). XFi Centre for Financial and Investment Working Paper No. 08/05. Available at SSRN: https://ssrn.com/abstract=1291693 or http://dx.doi.org/10.2139/ssrn.1291693

Xiao Gang BI

Nottingham University Business School ( email )

199 Taikang East Road
University Park
Ningbo, Zhejiang 315100
China

Alan Gregory (Contact Author)

University of Exeter - Xfi Centre ( email )

University of Exeter
Xfi Building, Rennes Dr.
Exeter, EX4 3BZ
United Kingdom

University of Exeter Business School ( email )

Streatham Court
Xfi Building Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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