Does Transparency Increase Takeover Vulnerability?

52 Pages Posted: 7 Aug 2018 Last revised: 8 May 2019

See all articles by Lifeng Gu

Lifeng Gu

The University of Hong Kong; University of Illinois at Urbana-Champaign

Dirk Hackbarth

Boston University - Department of Finance & Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: April 10, 2019

Abstract

We study how transparency affects takeover probability and stock returns. If transparency helps acquiring firms to determine target value or synergy, then it can increase takeover vulnerability. Estimated takeover probabilities produce results consistent with this view and offer better fit over 25 years of takeover data. Notably, the relation between takeover likelihood and stock returns is stronger when takeover likelihood is more precisely estimated by our augmented model that includes transparency. Moreover, a takeover factor constructed with the new takeover probability better captures variation in the cross-section of stock returns and is associated with higher premium.

Keywords: Corporate Governance, Takeovers, Transparency, Stock Returns

JEL Classification: G30, G34

Suggested Citation

Gu, Lifeng and Hackbarth, Dirk, Does Transparency Increase Takeover Vulnerability? (April 10, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 570/2018, Available at SSRN: https://ssrn.com/abstract=3216258 or http://dx.doi.org/10.2139/ssrn.3216258

University of Illinois at Urbana-Champaign

1206 South Sixth Street
Champaign, IL 61820
United States

Dirk Hackbarth

Boston University - Department of Finance & Economics ( email )

Department of Finance
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)

HOME PAGE: http://people.bu.edu/dhackbar/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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