Dickerson, Andrew P. Gibson, Heather D. Tsakalotos, Euclid
Year of Publication:
Department of Economics Discussion Paper No. 9803
University of Kent, Department of Economics, Canterbury
This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results indicate that the market for corporate control disciplines poorly performing companies, and that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of over 20%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free cash-flow theory of takovers.
Takovers Market for Corporate Control Hazard Functions