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Deterring Takeover: Evidence from a Large Panel of UK Firms

Andrew Dickerson (), Heather Gibson () and Euclid Tsakalotos ()

Studies in Economics from School of Economics, University of Kent

Abstract: We investigate the relationship between a company's dividend strategy and its risk of takeover. Our results from a large panel of UK quoted companies suggest that higher dividend payments are associated with a significantly lower conditional probability (hazard) of takeover. Moreover, firms which wish to avoid takeover would be better to distribute the marginal £1 of earnings in dividends rather than investing it in the company. We consider two explanations for these findings. We suggest that the presence of an active market for corporate control could encourage firms to raise dividends to maintain shareholder loyalty.

Keywords: Takeovers; Dividends; Investment; Hazard Functions (search for similar items in EconPapers)
JEL-codes: L1 G34 C41 (search for similar items in EconPapers)
Date: 1997-06
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Published in Journal of Industrial Economics, 1998, XLV1, 3, pp.281-300

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