Takeover Competition, Target's Organisational Form and the Market Reaction to Acquisition Announcements

Abstract

We examine the influence of the takeover competition on the short-run market performance of acquirers of private and public targets. We use eight alternative measures to capture the takeover competition in order to provide robust results. The takeover competition has a significant positive association with the announcement period abnormal return earned by the acquirers of private targets while having no significant association with the market performance of the acquirers of public targets. When the sample was divided into two groups as large and small acquirers, it was found that the competition has a significant positive influence on abnormal return only when the large companies acquire private targets; the relationship turns out to be negative and significant when small companies acquire public targets. Additionally, competition induced bid attempts of strong governance companies are associated with positive abnormal return when they acquire private targets; weakly governed firms realise negative abnormal return as a result of the competition they face when they acquire public targets. The findings remain insensitive to a number of robustness tests.