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Managerial Performance, Bid Premiums, and the Characteristics of Takeover Targets

Author

Listed:
  • Chao Chen

    (Center for China Finance and Business Research and Department of Finance, California State University
    School of Economics and Management, Tsinghua University)

  • Philippe Cornu

    (Department of Finance, University of Geneva)

Abstract

This paper tests the inefficient performance hypothesis and the pre-bid runup premium hypothesis of hostile takeovers. The long-term and short-term performance and the characteristics of friendly and hostile takeovers are compared. We find no indications of poor target performance over the five years prior to the takeover announcement. However, there is evidence that hostile takeovers do perform a correction for target managerial failure. This paper also finds that the type of offer is strongly related to the general trend of the M&A market and the size, and industry of the target firm. Higher takeover premiums and cash offers are more often associated with hostile offers. Moreover, the odds for hostile offers to incur competition among bidders and to be unsuccessful are significantly higher than that for friendly offers.

Suggested Citation

  • Chao Chen & Philippe Cornu, 2002. "Managerial Performance, Bid Premiums, and the Characteristics of Takeover Targets," Annals of Economics and Finance, Society for AEF, vol. 3(1), pages 67-84, May.
    • Handle: RePEc:cuf:journl:y:2002:v:3:i:1:p:67-84
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    References listed on IDEAS

    as
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    4. Franks, Julian & Mayer, Colin, 1996. "Hostile takeovers and the correction of managerial failure," Journal of Financial Economics, Elsevier, vol. 40(1), pages 163-181, January.
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    8. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
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    Cited by:

    1. João Paulo Braga & Luís M. Pereira Gomes, 2016. "The Impact of the Preliminary Announcement on the Abnormal Returns of the Companies Involved in Takeover Bids in the Portuguese Stock Market between 2000 and 2014," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 5(1), pages 39-65.

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    More about this item

    Keywords

    Hostile takeover; Managerial performance; Bid premium;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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