Finance - Theses
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ItemTakeover waves: behaviour, motives and consequences( 1997)The objective of this thesis is to assist in the development of a comprehensive theory of takeover activity. It is proposed that the micro based theories of takeovers developed by Roll (1986) and Jensen (1986) can be integrated with macro takeover theories and aspects of behavioural finance into an explanation of both firm specific acquisitions and the takeover wave phenomenon. Specifically, the central hypothesis is that takeover waves are driven by overreactions and agency conflicts which emerge during capital market booms. Four research questions concerning the behaviour, origins, composition, and consequences of takeover activity are examined in the context of this hypothesis. Empirical evidence indicates that Australian takeovers can be characterised by a wave process. A new version of a nonlinear model is developed and applied to a new, consistent series of takeover data for the period 1955 to 1995. The takeover series is shown to follow a two state Markov switching regime model, where the underlying processes are Poisson-distributed with first order autoregressive properties. A filter developed by Hamilton (1989) is applied to identify 1 minor wave from 1979 to 1980, and 3 major waves, between 1959 and 1961, 1969 and 1973, and 1988 and 1990. An examination of the origins of takeover waves reveals that they are positively related to increases in share prices and occur during periods of high business confidence. They do not appear to be caused by external shocks in specific industries or by changes in the regulatory environment. Further, the takeover wave phenomenon is evident in both conglomerate and related takeover series, and the incidence of multiple acquirers and competing bids does not change significantly during wave states. Finally, the consequences of takeover waves are explored. Between 1955 and 1995, returns to bidders are insignificant at 0.2%, and the target premium is statistically significant at 40.3%. Bidder abnormal returns are relatively low in takeover waves. However, they are not significantly different from returns in normal activity. In contrast, the takeover premium exhibits a significant positive relationship with takeover waves. In general, these results provide considerable support for the managerial hypothesis of takeover waves advanced in this thesis. This has implications for a variety of market participants. It suggests that the market for corporate control is not entirely efficient. Measures to align shareholder and manager interests may be appropriate during takeover waves. More importantly, it provides insight into the reconciliation of micro and macro theories of takeover motives. This enables an explanation of takeovers that can be both generalised to an aggregate and reduced to an individual level.