Takeover-divestiture combinations and shareholder wealth

Christopher J. Marquette and Thomas G. E. Williams

Applied Financial Economics, 2007, vol. 17, issue 7, 577-586

Abstract: Situations in which a firm is taken over by another and then subsequently spun off are of interest, because it is not clear whether the spin off is the reversal of a bad decision or the second part of a deliberate action to extract value from the target firm. To explore these issues, we analyse the effect of the takeover and divestiture on the value of the firm that initiates these takeovers. There is a negative wealth effect for the firms that undertake these transactions upon the announcement of the takeover and a positive wealth effect for the spinoff. However, the combined wealth effect of the takeover and spinoff is not significant. Regressing this total 'round-trip' wealth effect for each firm on accounting and financial characteristics of the firm targeted in the takeover reveals a positive relation between total wealth effect and research and development expenditure in the target firm. The results are consistent with the hypothesis that takeover-divestiture combinations can increase shareholder wealth when they target firms that have growth opportunities that can be appropriated.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603100600722169 (text/html)
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: https://EconPapers.repec.org/RePEc:taf:apfiec:v:17:y:2007:i:7:p:577-586

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603100600722169

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().