Stock market driven acquisitions versus the Q theory of takeovers – The UK evidence
Gregory, Alan; Bi, Xiao Gang
Date: 1 June 2011
Journal
Journal of Business Finance & Accounting
Publisher
Wiley-Blackwell
Abstract
Using a sample of UK mergers and acquisitions from 1985-2004, we show that equity over-valuation appears to play an important role in the determination of financing method. Our results are broadly consistent with those theories based upon market over-valuation driving mergers and their financing, rather than a Q-theory explanation. In ...
Using a sample of UK mergers and acquisitions from 1985-2004, we show that equity over-valuation appears to play an important role in the determination of financing method. Our results are broadly consistent with those theories based upon market over-valuation driving mergers and their financing, rather than a Q-theory explanation. In some contrast to the US results of Dong et al. (2006) we find that proxies for over-valuation appear to be the more persuasive explanation for acquisition financing behaviour in the UK. Given the evidence in favour of valuation effects, we argue that a treatment effects model is necessary in investigating the long-run performance of acquirers. Taken together with results from a univariate analysis, such a model reveals some modest support for the Shleifer and Vishny (2003) hypothesis.
Finance and Accounting
Faculty of Environment, Science and Economy
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