This paper employs a multinomial logit model in an attempt to better understand the motives behind takeovers. The results from the multinomial logit models show that the characteristics of hostile and friendly targets differ significantly and that these differences also vary depending on the time period under investigation. The results give some support to the disciplining role of the hostile takeover. Furthermore, conclusions based on a simple binomial logit model are likely to be misleading and result in incorrect inferences regarding the characteristics of firms subject to takeover. Copyright Blackwell Publishers Ltd 1997.

Prior work has established that entrenched managers make value-decreasing acquisitions. In this study, we ask how exactly they destroy that value. Overall, we find that value destruction by entrenched managers comes from a combination of factors. First, they disproportionately avoid private targets, which have been shown to be generally associated with value creation. Second, when they do buy private targets or public targets with blockholders, they tend not to use all-equity offers, which has the effect of avoiding the transfer of a valuable blockholder to the bidder. We further test whether entrenched managers simply overpay for good targets or actually choose targets with lower synergies. We find that while they overpay, they also choose low-synergy targets in the first place, as shown by combined announcement returns and post-merger operating performance. JEL classification: G34; G32Keywords: Corporate governance; Mergers; Entrenchment; Blockholders; Overpayment Electronic copy available at: http://ssrn.com/abstract=1562247 Electronic copy available at: http://ssrn.com/abstract=1562247 The Sources of Value Destruction in Acquisitions by Entrenched Managers AbstractPrior work has established that entrenched managers make value-decreasing acquisitions. In this study, we ask how exactly they destroy that value. Overall, we find that value destruction by entrenched managers comes from a combination of factors. First, they disproportionately avoid private targets, which have been shown to be generally associated with value creation. Second, when they do buy private targets or public targets with blockholders, they tend not to use all-equity offers, which has the effect of avoiding the transfer of a valuable blockholder to the bidder. We further test whether entrenched managers simply overpay for good targets or actually choose targets with lower synergies. We find that while they overpay, they also choose low-synergy targets in the first place, as shown by combined announcement returns and post-merger operating performance.JEL classification: G34; G32

No abstract

Prior work has established that entrenched managers make value-decreasing acquisitions. In this study, we ask how exactly they destroy that value. Overall, we find that value destruction by entrenched managers comes from a combination of factors. First, they disproportionately avoid private targets, which have been shown to be generally associated with value creation. Second, when they do buy private targets or public targets with blockholders, they tend not to use all-equity offers, which has the effect of avoiding the transfer of a valuable blockholder to the bidder. We further test whether entrenched managers simply overpay for good targets or actually choose targets with lower synergies. We find that while they overpay, they also choose low-synergy targets in the first place, as shown by combined announcement returns and post-merger operating performance. JEL classification: G34; G32Keywords: Corporate governance; Mergers; Entrenchment; Blockholders; Overpayment Electronic copy available at: http://ssrn.com/abstract=1562247 Electronic copy available at: http://ssrn.com/abstract=1562247 The Sources of Value Destruction in Acquisitions by Entrenched Managers AbstractPrior work has established that entrenched managers make value-decreasing acquisitions. In this study, we ask how exactly they destroy that value. Overall, we find that value destruction by entrenched managers comes from a combination of factors. First, they disproportionately avoid private targets, which have been shown to be generally associated with value creation. Second, when they do buy private targets or public targets with blockholders, they tend not to use all-equity offers, which has the effect of avoiding the transfer of a valuable blockholder to the bidder. We further test whether entrenched managers simply overpay for good targets or actually choose targets with lower synergies. We find that while they overpay, they also choose low-synergy targets in the first place, as shown by combined announcement returns and post-merger operating performance.JEL classification: G34; G32

This paper empirically tests whether it is possible to generate abnormal returns from investing in a portfolio of predicted successful takeover targets. Portfolios are formed on the basis of predictions from models similar to those estimated by Palepu (1986). However, unlike Palepu (1986), the portfolios in this paper are formed using a decision rule that results in smaller portfolios with higher average takeover probabilities. This provides a stronger test of whether share prices reflect future takeover probabilities. The results show that while the models have significant explanatory power, the portfolios fail to beat the return on the market over a 12-month holding-period. Copyright Blackwell Publishers Ltd 2001.