Cost Inefficiency, Size of Firms and Takeovers

Posted: 2 Aug 2001

See all articles by Susanne Trimbath

Susanne Trimbath

STP Advisory Services, LLC; Creighton University, Department of Finance and Economics; Bellevue University - College of Business

Halina Frydman

New York University (NYU) - Department of Information, Operations, and Management Sciences

Roman Frydman

New York University (NYU) - Department of Economics

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Abstract

This study, using the Cox proportional hazards model, finds that the risk of takeover rises with cost inefficiency. It also finds that a firm faces a significantly higher risk of takeover if its cost performance lags behind its industry benchmark. Moreover, these findings appear to be remarkably stable over the nearly two decades spanned by the sample. The effect of the variables used to measure the risk-size relationship, however, indicates temporal changes. Lastly, the study presents evidence from fixed-effects models of ex post cost efficiency improvements that support the hypothesis that takeover targets are selected based on the potential for improvement.

Keywords: Corporate finance and governance; Mergers; Acquisitions; Econometric methods Models with panel data Truncated and censored models; Cox Hazard Model

JEL Classification: C23, C24

Suggested Citation

Trimbath, Susanne and Frydman, Halina and Frydman, Roman, Cost Inefficiency, Size of Firms and Takeovers. Review of Quantitative Finance and Accounting, Vol. 17, No. 4, pp. 397-420, 2001. Available at SSRN: https://ssrn.com/abstract=278770

Susanne Trimbath (Contact Author)

STP Advisory Services, LLC ( email )

PO Box 1252
Bellevue, NE 68005
United States
4029328888 (Phone)

HOME PAGE: http://www.STPAdvisors.com

Creighton University, Department of Finance and Economics ( email )

United States

Bellevue University - College of Business ( email )

United States

Halina Frydman

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States
212-998-0453 (Phone)

Roman Frydman

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

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