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The Equity Wealth Effects of Method of Payment in Takeover Bids for Privately Held Firms

Author

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  • Raymond da Silva Rosa

    (UWA Business School, The University of Western Australia, Crawley, WA 6009.)

  • Robin Limmack

    (Department of Accounting, Finance & Law, Finance & Law, University of Stirling, Stirling FK9 4LA, Scotland.)

  • Supriadi

    (UWA Business School, The University of Western Australia, Crawley, WA 6009.)

  • David Woodliff

    (UWA Business School, The University of Western Australia, Crawley, WA 6009.)

Abstract

In takeover bids for unlisted firms, the typically more closely-knit target shareholders have the bargaining power and incentives to force the bidder's managers to disclose their private information about the value of their firm's shares. The acceptance of share-based offers by private-target shareholders thus conveys favourable information about the net present value of the takeover, unlike the case in share-based bids for listed targets. We document that successful bids for private targets are associated with significantly positive abnormal returns to bidders over the announcement period, a result that diverges from findings based on bids for public targets. Contrary to Chang (1998), share-based bids for Australian private targets are not associated with higher abnormal returns to bidders. Most bids by listed companies for private companies are cash-based and generate a positive return. Our results are consistent with the explanation that lower competition for private targets allows acquirers to capture more of the economic rent from takeovers by offering cash bids.

Suggested Citation

  • Raymond da Silva Rosa & Robin Limmack & Supriadi & David Woodliff, 2004. "The Equity Wealth Effects of Method of Payment in Takeover Bids for Privately Held Firms," Australian Journal of Management, Australian School of Business, vol. 29(1_suppl), pages 93-110, June.
    • Handle: RePEc:sae:ausman:v:29:y:2004:i:1_suppl:p:93-110
    DOI: 10.1177/031289620402901S04
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    References listed on IDEAS

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    1. Raymond Silva Da Rosa & H. Y. Izan & Adam Steinbeck & Terry Walter, 2000. "The Method of Payment Decision in Australian Takeovers: An Investigation of Causes and Effects," Australian Journal of Management, Australian School of Business, vol. 25(1), pages 67-94, June.
    2. Amihud, Yakov & Lev, Baruch & Travlos, Nickolaos G, 1990. "Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions," Journal of Finance, American Finance Association, vol. 45(2), pages 603-616, June.
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    4. Blackburn, Virginia L & Dark, Frederick H & Hanson, Robert C, 1997. "Mergers, Method of Payment and Returns to Manager- and Owner-Controlled Firms," The Financial Review, Eastern Finance Association, vol. 32(3), pages 569-589, August.
    5. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
    6. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    7. Julian R. Franks & Robert S. Harris & Cohn Mayer, 1988. "Means of Payment in Takeovers: Results for the United Kingdom and the United States," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 221-264, National Bureau of Economic Research, Inc.
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    9. Jarrell, Gregg A & Brickley, James A & Netter, Jeffry M, 1988. "The Market for Corporate Control: The Empirical Evidence Since 1980," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 49-68, Winter.
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    3. Nurhazrina Mat Rahim & Wee Ching Pok, 2013. "Shareholder wealth effects of M & As: the third wave from Malaysia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 9(1), pages 49-69, February.
    4. Faff, Robert & Prasadh, Shyaam & Shams, Syed, 2019. "Merger and acquisition research in the Asia-Pacific region: A review of the evidence and future directions," Research in International Business and Finance, Elsevier, vol. 50(C), pages 267-278.

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