Takeovers and the Cross-Section of Returns

K. J. Martijn Cremers, Vinay B. Nair and Kose John

Review of Financial Studies, 2009, vol. 22, issue 4, pages 1409-1445

Abstract: This paper considers the impact of the takeover likelihood on firm valuation. If firms are more likely to acquire when there is more free cash or lower required rates of return, the targets become more sensitive to shocks to cash flows or the price of risk. Ceteris paribus, firms exposed to takeovers have different rates of return than protected firms. Using takeover likelihood estimates, we create a "takeover factor," buying (selling) firms with a high (low) takeover likelihood, which generates "abnormal" returns. Several tests confirm that the takeover factor helps explaining cross-sectional differences in equity returns and is related to takeover activity. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2009

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhn032 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:rfinst:v:22:y:2009:i:4:p:1409-1445

Ordering information: This journal article can be ordered from
http://www4.oup.co.uk/revfin/subinfo/

Access Statistics for this article

Review of Financial Studies is edited by Maureen O'Hara

More articles in Review of Financial Studies from Oxford University Press for Society for Financial Studies
Address: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().