The development of predictive models linking target and acquirer companies and their usefulness for theory building. (1989)
AuthorsCook, Juliet Louiseshow all
Takeovers occur between acquirer and target companies. Previous merger research disregards the link formed between takeover pairs. This thesis uses a positive framework and predictive techniques to evaluate the link between acquirers and targets. Models are developed which use financial measures of acquirers to predict the financial characteristics of targets. The resultant models have three uses. (I) Significant models may be used to guide the actions of decision makers, and increase the efficiency with which various parties can identify abnormal gains from takeovers. (2) Results suggest that acquirer size and leverage are important factors in the target selection process. Results further contribute to evidence supporting the economies of scale hypothesis, but provide evidence which is contrary to the differential efficiency and earnings growth hypotheses. (3) Predictive models anticipate fresh knowledge. The use of cluster analysis identifies multiple subgroups within each of the target and acquirer groups. However, target and acquirer sub-groups were not associated with one another. Further, the insignificance of most predictive models suggests that acquirer and target groups are not linked or that multiple links occur between groups.