Does Takeover Increase Stockholder Value

Posted: 5 Nov 2000

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Per Olsson

Duke University

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Date Written: February 29, 2000

Abstract

Does takeover increase stockholder value? - Yes. We modify the calendar-time portfolio regressions (CTPRs) approach to measure the abnormal returns of a takeover portfolio composed exclusively of successful bidders and targets from 1963 to 1995. This technique balances the positive announcement-period stock price effects against the alleged post-announcement drift that is commonly thought to accompany takeovers. By regressing the takeover portfolio returns on asset-pricing factors with GARCH(1,1) error specification, our methodology overcomes a number of limitations that would otherwise confound this approach. Studying 3,467 successful takeover events, we find that value weighted portfolios earn a highly significant 72 basis points a month in abnormal returns. Equally weighted results are even more dramatic. We extend the analysis to study mergers within and across industry boundaries. Using method of payment as a proxy for pooling versus purchase accounting, we also examine the impact of accounting choice on performance.

JEL Classification: G00, G30, G34

Suggested Citation

Hou, Kewei and Olsson, Per Mikael and Robinson, David T., Does Takeover Increase Stockholder Value (February 29, 2000). EFA 0488. Available at SSRN: https://ssrn.com/abstract=246151

Kewei Hou

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Per Mikael Olsson

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States

David T. Robinson (Contact Author)

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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