Which Takeover Targets Overinvest?

Robert J. Hendershott

Journal of Financial and Quantitative Analysis, 1996, vol. 31, issue 4, 563-580

Abstract: Existing research finds little evidence of overinvestment by successfully acquired targets. This paper shows how samples drawn from completed takeovers are biased against finding overinvestment and documents evidence of overinvestment in targets that use a highly leveraged transaction to avoid a takeover. The evidence also suggests that these restructurings create value by mitigating the targets' overinvestment problems.

Date: 1996
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