Partial acquisitions and firm performance

Abstract

There exists a large body of empirical work that documents the existence of positive wealth effects accruing to the common shareholders of the targets of corporate takeover bids. The existence of an efficacious market for corporate control implies that these wealth effects will, on average, be followed by substantive changes in the operating and financial performance of the target firms. The purpose of this paper is to examine the capital market effects and the subsequent effects on firm performance (as reflected in published financial data) associated with ownership changes resulting from a common type of takeover bid, the partial acquisition. We find that, in the aggregate, changes in firm performance are not detectable in financial ratios constructed from the target firms' accounting data.