Less Popular but More Effective Toeholds in Corporate Takeovers
45 Pages Posted: 12 Jun 2012 Last revised: 2 Oct 2019
Date Written: October 1, 2019
Despite their claimed advantages, toehold strategies have rarely been adopted in recent corporate takeovers and do not seem to increase acquirer returns. Are toeholds ineffective and becoming obsolete? We show that this is not the case. We find that toeholds are preferred for executing difficult takeovers. After controlling for such endogeneity in toehold-based acquisitions, toeholds do increase returns to acquirers. Moreover, the performance of toehold strategies improves over time due to more selective and more effective acquisition of toeholds. We find that this time trend is in part explained by learning-by-doing from past toehold acquisitions.
Keywords: takeovers, toeholds, acquisition experience
JEL Classification: G02, G14, G34
Suggested Citation: Suggested Citation