Does Share Buyback Deter Takeovers? From Ex Ante to Ex Post

38 Pages Posted: 17 Mar 2012

See all articles by Yingmei Cheng

Yingmei Cheng

Florida State University - College of Business

Tianming Zhang

Florida State University - Department of Accounting

Date Written: March 1, 2012

Abstract

Billett and Xue (2007) document that the ex ante (pre-repurchase) takeover probability has a positive and significant impact on share repurchases, but there is no evidence that share repurchases are indeed associated with fewer ex post takeover bids. We examine whether share buyback deters takeovers ex post, controlling for the ex ante takeover probability. We find that, buying back shares is indeed effective in deterring the ex post takeover bids among the firms with high ex ante takeover likelihood. Furthermore, firms with higher ex ante takeover likelihood pay a higher average price to buy back shares, which is consistent with firms using share buyback to deter takeovers.

Keywords: share repurchases, anti-takeover, propensity score

JEL Classification: G35, G34

Suggested Citation

Cheng, Yingmei and Zhang, Tianming (Tim), Does Share Buyback Deter Takeovers? From Ex Ante to Ex Post (March 1, 2012). Available at SSRN: https://ssrn.com/abstract=2023764 or http://dx.doi.org/10.2139/ssrn.2023764

Yingmei Cheng (Contact Author)

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-7869 (Phone)

Tianming (Tim) Zhang

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States

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