The Information Content of Defence Documents in UK Hostile Takeover Bids

This study examines the defence documents of 79 hostile take-over bids of publicly quoted companies in the UK during the period 1988–1990 using logit regression and discriminant analysis to determine if any of the 41 identified characteristics of the defence document and seven continuous control variables lead to a higher or lower probability of a successful defence. The study finds that managers in target companies are unable to introduce new information in their defence documents that materially affects the outcome of a bid. This suggests that managers may advise shareholders to reject a bid for other reasons, such as to drive up the offer price.     

A Partial Theory of Takeover Bids

There is a natural separation between production decisions affecting the firm as a whole and individual decisions by each shareholder about his portfolio of securities. The end result of these two types of decisions is normally referred to as a productive exchange equilibrium. At such an equilibrium, no individual wants to adjust his portfolio and no firm can muster majority support for a change in its production plans. This paper presents a partial theory of takeover bids in that it examines the role of a takeover bid as a mechanism by which a simultaneous change in shareholdings and production plans can be achieved. This enables a new production exchange equilibrium to be reached which is preferred by a majority of the shareholders but which is inaccessible without a contingent contract in the form of a takeover bid.     

法国公开要约收购制度的最新改革——以2006年《公开要约收购法》为中心

2006年3月31日，依欧盟转化《要约收购指令》之要求，法国颁布了《公开要约收购法》，对现有的公开要约收购制度进行了多方位、深层次的改革。从宏观上看，此次改革主要涉及四个方面，即金融证券管理局监管范围的改革、强制要约收购制度的改革、要约透明机制的改革以及反要约收购防御措施的改革。尽管改革的效果仍有待评估，但法国在此次改革中所体现的提高欧盟范围内企业竞争力的决心和表率作用无疑为欧盟经济一体化注入了新的活力。     

Volatility Implied by Option Prices: The Case of Takeover Bids

We model the effect of an impending share price jump on the implied standard deviation (ISD) of a company's options, testing the model by investigating its predictive ability for ISDs of companies subject to a takeover bid. Our model fits the observed ISDs well for all but certain deep in-the-money options. However, the model demonstrates that a discontinuity in the relationship between moneyness and the ISD both explains the combination of high and zero ISDs exhibited by these options, and impairs the predictive power of the model at these levels of moneyness.     

Voluntary Disclosure of Profit Forecasts by Target Companies in Takeover Bids

This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more likely during contested bids. In agreed bids, probability of forecast disclosure was greater the shorter the bid horizon. In contested bids, forecasts were more likely where there were large block shareholdings, for larger targets and for targets in the capital goods industry. There was a clear tendency to disclose good news forecasts. A significant positive association between forecast disclosure and increase in offer price was found.     

Common Stock Returns in Corporate Takeover Bids: The Case of Brokerage House Acquisitions

This paper examines the common stock returns of three groups of bidders that purchased brokerage houses. Only in the cases of horizontal mergers, one brokerage house purchasing another, are there abnormal returns associated with the purchase. Neither bank holding company bidders nor non-financial bidders gain significantly when purchasing a brokerage house. Bank holding company bidders face considerable regulatory delays, and these economic disturbances may eliminate their gains. Bank holding company expansion into these non-bank activities does not appear, at the time of announcement, to either hurt or benefit them; hence, this expansion does not appear to further the loss exposure of the Federal Deposit Insurance Corporation.     

The Role of ESOPs in Takeover Contests

This article examines both the shareholder wealth effects of employee stock ownership plans (ESOPs) announced by firms subject to takeover pressure and the takeover incidence of targets with and without ESOPs. Although we do not find that defensive ESOPs significantly reduce shareholder wealth on average, we identify two factors—the change in managerial and employee ownership due to the ESOP and the simultaneous announcement of other defensive tactics—that are associated with negative stock price reactions. We find that ESOPs are strong deterrents to takeover. ESOP targets that are acquired earn higher returns than targets without ESOPs, but the difference is not statistically significant.     

The Strategic Role of Debt in Takeover Contests

In a takeover contest, the presence of bidders' existing debtholders, if they can be expropriated by issuing new debt with equal or senior priority, allows bidders to commit to bid more than their valuation of the target. Such commitment can be beneficial because it deters potential entry by subsequent bidders and may allow a first bidder to acquire the target at a bargain price. The cost is that if entry by subsequent bidders does nevertheless take place, because the first bidder has committed himself to bid high premia, a bidding war ensues resulting in offers that may involve excessive premia, i.e., bids that are larger than the bidders' valuation of the target.     

The Effect of Bank Relations on Investment Decisions: An Investigation of Japanese Takeover Bids

We study 154 domestic mergers in Japan during 1977 to 1993. In contrast to U.S. evidence, mergers are viewed favorably by investors of acquiring firms. We document a two-day acquirer abnormal return of 1.2 percent and a mean cumulative abnormal return of 5.4 percent for the duration of the takeover. Announcement returns display a strong positive association with the strength of acquirer's relationships with banks. The benefits of bank relations appear to be greater for firms with poor investment opportunities and when the banking sector is healthy. We conclude that close ties with informed creditors, such as banks, facilitate investment policies that enhance shareholder wealth.     

Corporate Takeover Bids,Methods of Payment,and Bidding Firms' Stock Returns

This study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids. The results reveal significant differences in the abnormal returns between common stock exchanges and cash offers. The results are independent of the type of takeover bid, i.e., merger or tender offer, and of bid outcomes. These findings, supported by analysis of nonconvertible bonds, are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment.     

Shareholder Wealth Effects of European Domestic and Cross‐border Takeover Bids

This paper analyses the short‐term wealth effects of large intra‐European takeover bids. We find announcement effects of 9% for the target firms compared to a statistically significant announcement effect of only 0.7% for the bidders. The type of takeover bid has a large impact on the short‐term wealth effects with hostile takeovers triggering substantially larger price reactions than friendly operations. When a UK firm is involved, the abnormal returns are higher than those of bids involving both a Continental European target and bidder. There is strong evidence that the means of payment in an offer has an impact on the share price. A high market‐to‐book ratio of the target leads to a higher bid premium, but triggers a negative price reaction for the bidding firm. We also investigate whether the predominant reason for takeovers is synergies, agency problems or managerial hubris. Our results suggest that synergies are the prime motivation for bids and that targets and bidders share the wealth gains.     

Board Composition, Board Effectiveness, and the Observed Form of Takeover Bids

We show that bidding firms consider target board characteristicswhen deciding takeover offer types and initial offer premiums.We study a sample of 436 proposed negotiated mergers and bypassoffers. Firms with individuals holding the titles of both chiefexecutive officer (CEO) and board chair are more likely to receivebypass offers. These offers are more likely to be successfuland generate higher target shareholder gains over the takeoveroffer period. When the target's board is independent, the targetis less likely to receive a high premium and the offer is lesslikely to succeed.     

Directors' Recommendations on Takeover Bids and the Management of Earnings: Evidence from Australian Takeovers

This article investigates whether Australian companies manage their earnings during takeover bids in a manner consistent with the earnings-management hypothesis. This hypothesis predicts that directors who reject a bid use accrual accounting to increase current earnings, supporting their claim that the bid, relative to earnings, is inadequate. Likewise, directors who accept a bid are predicted to use accrual accounting to decrease current earnings. Overall, the results are not consistent with the earnings-management hypothesis. However, some components of unexpected accruals (our proxy for managed earnings) change in the direction predicted by the earnings-management hypothesis, although these changes are not statistically significant. Using industry adjusted performance measures the conclusion is that unexpected accruals are primarily a manifestation of poor financial performance of target firms in the period leading up to the takeover bid.     

The Allocational Effects of the Precision of Accounting Estimates

This paper studies the allocational effects associated with the precision of accounting estimates when the precision of estimates is a choice variable for firms. One part of the paper considers the effects of the observability of precision choices. We show that, generally, making precision choices private increases firms' equilibrium precision choices and also, as a by‐product, their equilibrium investment choices. We further show that, when firms' precision choices are private, there may be a “disclosure trap,” in which, unless investors conjecture the owner has chosen an estimate with the highest possible precision, the owner will respond to investors' conjecture by choosing an estimate whose precision is higher than investors' conjecture. In a multifirm version of the model with endogenous investment, we show that the equilibrium investment by the firm increases in the precision of the firm's own estimate and decreases in the precisions of other firms' estimates. Finally, we show that, in a setting where the firm's initial owner sells his stake in the firm over the course of two periods, with disclosures of estimates of the firm's value occurring prior to each sale of shares, if the precisions of the estimates are public, the equilibrium precisions of the estimates increase over time when the owner sells a sufficiently large fraction of the firm in the first period, and otherwise the equilibrium precisions of estimates remain constant over time.     

On the Role of Patience in an Insurance Market With Asymmetric Information

We analyze a two-period competitive insurance market that is characterized by the simultaneous presence of moral hazard and adverse selection with regard to consumer time preferences. It is shown that there exists an equilibrium in which patient consumers use high effort and buy an insurance contract with high coverage, whereas impatient consumers use low effort and buy a contract with low coverage or even remain uninsured. This finding may help to explain why the opposite of adverse selection with regard to risk types can sometimes be observed empirically.     

Information Leakage Prior to Takeover Announcements: The Effect of Media Reports

There is considerable evidence documenting pre-bid price and volume reaction to takeover announcements. This has at times been argued to constitute evidence of insider trading. Although insider trading probably occurs, much pre-bid trading may result from event anticipation. This paper documents the effects of one source through which such anticipation is disseminated, namely the print media. Our results show that measures of unexpected returns and turnover can be reduced by one third when the information from media reports is controlled for. The general implication of our finding is that, if other such sources were taken into account (for example, information conveyed by substantial shareholder notices and the transactions costs of trading), then previous evidence of statistically significant unexpected pre-bid returns and turnover may be substantially reduced if not eliminated.     

The Asymmetric Information Problem in Taiwan's Cancer Insurance Market

This paper investigates the problem of asymmetric information in Taiwan’s cancer insurance market. Through the survey data, we find evidence of adverse selection existing in this market. Furthermore, we collect additional information on the individual, and find that the individual’s family cancer history contains additional valuable information. It can not only more accurately predict the probability of contracting cancer, as well as predict the willingness to purchase extended cancer insurance, but it can also help to mitigate the severity of adverse selection in the insurance market.     

Asymmetric Information in Fads Models

Fads models were introduced by Shiller (Am Econ Rev 71:421–436, 1981) and Summers (J Finance 41:591–601, 1986) as plausible alternatives to the efficient markets/constant expected returns assumptions. Under these models, logarithms of asset prices embody both a martingale component, with permanent shocks, and a stationary component, with temporary shocks. We study a continuous-time version of these models both from the point of view of informed agents, who observe both fundamental and market values, and from that of uninformed agents, who only observe market prices. We specify the asset price in the larger filtration of the informed agent, and then derive its decomposition in the smaller filtration of the uninformed agent using the Hitsuda representation of Gaussian processes. For uninformed agents we obtain a non-Markovian dynamics, which justifies the use of technical analysis in optimal trading strategies. For both types of agents, we solve the problem of maximization of expected logarithmic utility from terminal wealth, and obtain an explicit formula for the additional logarithmic utility of informed agents. Finally, we apply the decomposition result to the problem of testing the presence of fads from market data. An application to the NYSE-AMEX indices from the CRSP database shows that, if the fads component prevails, then the mean-reversion speed must be slow.     

The Deterring Role of the Medium of Payment in Takeover Contests: Theory and Evidence from the UK

The deterring role of the medium of payment in a takeover contest is analysed from the point of view of the bidder. Cash, debt and equity are considered as alternative mediums of payment, and the bidder equilibrium strategies are specified following the Perfect Bayesian Equilibrium requirements for a signalling game. The model predicts notably that cash offers signal a high‐valuing bidder, strongly determined to acquire the target firm. Moreover, cash offers deter competition better than debt or equity offers. The theoretical results are validated with data from the UK over 1995–96.