Andrew P. Dickerson, Heather D Gibson and Euclid Tsakalotos
"Takeover risk and the market for corporate control: the experience of British firms in the 1970s and 1980s," International Journal of Industrial Organization Volume 20, Issue 8, October 2002, pages 1167-95.
JEL codes: L1, G3, C41
Keywords: takeovers, market for corporate control, hazard functions
: 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 are consistent with the view that the market for corporate control disciplines poorly performing companies, and suggest 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 25%. 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 takeovers.