Stock Market Driven Acquisitions Versus the Q Theory of Takeovers: The UK Evidence

29 Pages Posted: 7 Jul 2011

See all articles by XiaoGang BI

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/July 2011

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 those theories based upon market over‐valuation driving mergers and their financing, rather than a Q-theory explanation. In some contrast to the US results of Dong et al. (2006) we find that proxies for over-valuation appear to be the more persuasive explanation for acquisition financing behaviour in the UK. Given the evidence in favour of valuation effects, we argue that a treatment effects model is necessary in investigating the long-run performance of acquirers. Taken together with results from a univariate analysis, such a model reveals some modest support for the Shleifer and Vishny (2003) hypothesis.

Suggested Citation

BI, Xiao Gang and Gregory, Alan, Stock Market Driven Acquisitions Versus the Q Theory of Takeovers: The UK Evidence (June/July 2011). Journal of Business Finance & Accounting, Vol. 38, Issue 5‐6, pp. 628-656, 2011, Available at SSRN: https://ssrn.com/abstract=1880453 or http://dx.doi.org/10.1111/j.1468-5957.2011.02234.x

Xiao Gang BI (Contact Author)

Nottingham University Business School ( email )

199 Taikang East Road
University Park
Ningbo, Zhejiang 315100
China

Alan Gregory

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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