Does Takeover Increase Stockholder Value

Topics:
Valuation
Tags:
Accounting,
Finance,
Financial Services,
Operational Accounting,
Social Science Electronic Publishing Inc.
Source:
Social Science Electronic Publishing

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Overview: A question which always arises is that does takeover increase stockholder value? - Yes. This, modify the calendar-time portfolio regressions (CTPRs) approach to measure the abnormal returns of a takeover portfolio composed exclusively of successful bidders and targets from 1963 to 1995. This technique balances the positive announcement-period stock price effects against the alleged post-announcement drift that is commonly thought to accompany takeovers. By regressing the takeover portfolio returns on asset-pricing factors with GARCH(1,1) error specification, methodology overcomes a number of limitations that would otherwise confound this approach. Studying 3,467 successful takeover events, it was found that value weighted portfolios earn a highly significant 72 basis points a month in abnormal returns. Equally weighted results are even more dramatic. It extend the analysis to study mergers within and across industry boundaries. Using method of payment as a proxy for pooling versus purchase accounting, it also examine the impact of accounting choice on performance.

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Format: PDF | Size: 335KB | Date: Feb 2000 | Pages: 58

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