The Equity Wealth Effects of Method of Payment in Takeover Bids for Privately Held Firms

23 Pages Posted: 11 May 2001

See all articles by Raymond da Silva Rosa

Raymond da Silva Rosa

The University of Western Australia - Department of Accounting and Finance; Financial Research Network (FIRN)

R.J. Limmack

University of Stirling - Department of Accounting and Finance

David R. Woodliff

University of Western Australia

S. Supriadi

The University of Western Australia - Department of Accounting and Finance

Date Written: May 2001

Abstract

The equity wealth effects of method of payment in takeover bids for privately held firms In takeover bids for unlisted firms, the typically more closely knit target shareholders have the bargaining power and incentive to force the bidder's managers to disclose their private information about the value of their firm's shares. The acceptance of share-based offers by private target shareholders thus conveys favourable information about the net present value of the takeover, unlike the case in share based bids for listed targets. We document that successful bids for private targets are associated with significantly positive abnormal returns to bidders over the announcement period, a result that diverges from findings based on bids for public targets. Contrary to Chang (1998), share based bids for Australian private targets are not associated with higher abnormal returns to bidders. However, most bids by listed companies for private companies are cash based and these generate a positive return. Our results are consistent with the explanation that lower competition for private targets allows acquirers to capture more of the economic rent from takeovers by offering cash bids.

Keywords: Takeovers, wealth effects, private targets

JEL Classification: G34

Suggested Citation

da Silva Rosa, Raymond and Limmack, R.J. and Woodliff, David R. and Supriadi, S., The Equity Wealth Effects of Method of Payment in Takeover Bids for Privately Held Firms (May 2001). Available at SSRN: https://ssrn.com/abstract=269212 or http://dx.doi.org/10.2139/ssrn.269212

Raymond Da Silva Rosa

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

R.J. Limmack (Contact Author)

University of Stirling - Department of Accounting and Finance ( email )

Stirling, Scotland FK9 4LA
United Kingdom
01786 467282 (Phone)
01786 467308 (Fax)

David R. Woodliff

University of Western Australia ( email )

Department of Accounting & Finance
Nedlands WA 6907
AUSTRALIA

S. Supriadi

The University of Western Australia - Department of Accounting and Finance

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

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