Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Company Takeovers and Equity Returns: The Target Size Effect

Company Takeovers and Equity Returns: The Target Size Effect This paper examines the relationship between the size of a target and the market's reaction to the announcement of a takeover offer. Using the constrained (0,1) market model to estimate abnormal returns, results from a sample of takeovers from 1984-88 indicate size effects for takeover targets at announcement date. While this outcome is consistent with both infor Mation asymmetry and liquidity explanations for the size effect, examination of the extent to which our whole-sample result is robust to a classification of the sample into sub-samples on the basis of outcome shows that the target size premium is explained by firms which are subject to a subsequent takeover. Sensitivity tests are conducted to establish the robustness of this result. We conclude that it is unlikely that a statistically significant target size effect is present in takeovers although the results are ambiguous. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australian Journal of Management SAGE

Company Takeovers and Equity Returns: The Target Size Effect

Download PDF
30 pages

Loading next page...
 
/lp/sage/company-takeovers-and-equity-returns-the-target-size-effect-FgSUa2HIAZ
Publisher
SAGE
Copyright
Copyright © by SAGE Publications
ISSN
0312-8962
eISSN
1327-2020
DOI
10.1177/031289629401900101
Publisher site
See Article on Publisher Site

Abstract

This paper examines the relationship between the size of a target and the market's reaction to the announcement of a takeover offer. Using the constrained (0,1) market model to estimate abnormal returns, results from a sample of takeovers from 1984-88 indicate size effects for takeover targets at announcement date. While this outcome is consistent with both infor Mation asymmetry and liquidity explanations for the size effect, examination of the extent to which our whole-sample result is robust to a classification of the sample into sub-samples on the basis of outcome shows that the target size premium is explained by firms which are subject to a subsequent takeover. Sensitivity tests are conducted to establish the robustness of this result. We conclude that it is unlikely that a statistically significant target size effect is present in takeovers although the results are ambiguous.

Journal

Australian Journal of Management – SAGE

Published: Jun 1, 1994

There are no references for this article.