The Financial Profiles of Takeover Target Firms and Their Takeover Predictability: Australian Evidence

Corporate Ownership and Control, Vol. 8, Issue 3, 2011

Finance and Corporate Governance Conference 2010

37 Pages Posted: 15 Jul 2011

See all articles by Shu Wen Cai

Shu Wen Cai

Australian National University (ANU)

Balasingham Balachandran

Dept of Economics, Finance and Marketing, La Trobe Business School, La Trobe University; Financial Research Network (FIRN)

Michael J. Dempsey

Ton Duc Thang University (TDTU)

Date Written: January 1, 2011

Abstract

We investigate those features of Australian firms that make them likely takeover targets. To this end, we apply a logit probability model similar to the one developed by Palepu (1986). Our findings reveal that takeovers are most likely to be motivated by market under-valuation combined with high levels of tangible assets. Takeover targets may also be financially distressed with high levels of leverage and low liquidity, and may exhibit declining sales growth with decreasing profitability. Notwithstanding these insights, we find that the prediction models are unable to provide abnormal returns with a high statistical significance, thereby lending support to market efficiency.

Keywords: corporate takeovers, takeover predictability, Palepu model

JEL Classification: G34

Suggested Citation

Cai, Shu Wen and Balachandran, Balasingham and Dempsey, Michael J., The Financial Profiles of Takeover Target Firms and Their Takeover Predictability: Australian Evidence (January 1, 2011). Corporate Ownership and Control, Vol. 8, Issue 3, 2011, Finance and Corporate Governance Conference 2010, Available at SSRN: https://ssrn.com/abstract=1884877

Shu Wen Cai (Contact Author)

Australian National University (ANU) ( email )

College of Business and Economics
Canberra, Australian Capital Territory 2601
Australia

Balasingham Balachandran

Dept of Economics, Finance and Marketing, La Trobe Business School, La Trobe University ( email )

Dept of Economics, Finance and Marketing,
La Trobe Business School, La Trobe University
Bundoora, Victoria 3086
Australia
+61394793103 (Phone)

Financial Research Network (FIRN)

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

HOME PAGE: http://www.firn.org.au

Michael J. Dempsey

Ton Duc Thang University (TDTU) ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

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