Does Takeover Increase Stockholder Value
Posted: 5 Nov 2000
Date Written: February 29, 2000
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: Suggested Citation