Less Popular but More Effective Toeholds in Corporate Takeovers

46 Pages Posted: 12 Jun 2012 Last revised: 9 Mar 2020

See all articles by Yun Dai

Yun Dai

Sun Yat-Sen University (SYSU) - Lingnan (University) College

Sebastian Gryglewicz

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Han Smit

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: March 1, 2020

Abstract

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

Dai, Yun and Gryglewicz, Sebastian and Smit, Han, Less Popular but More Effective Toeholds in Corporate Takeovers (March 1, 2020). Available at SSRN: https://ssrn.com/abstract=2049298 or http://dx.doi.org/10.2139/ssrn.2049298

Yun Dai (Contact Author)

Sun Yat-Sen University (SYSU) - Lingnan (University) College ( email )

135 Xingang Xi Road
Tuen Mun
Guangzhou, Guangzhou 510275
China

Sebastian Gryglewicz

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Han Smit

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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