Partial acquisitions, the acquisition probability hypothesis, and the abnormal returns to partial targets

    Authors

    A. Akhigbe; A. D. Martin;A. M. Whyte

    Comments

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    Abbreviated Journal Title

    J. Bank Financ.

    Keywords

    partial acquisition; acquisition probability; takeover; toehold; abnormal returns; FREE CASH FLOW; CORPORATE-CONTROL; EMPIRICAL-ANALYSIS; SHAREHOLDER; WEALTH; TAKEOVER CONTESTS; TOEHOLDS; OWNERSHIP; MARKET; DIVISION; SUCCESS; Business, Finance; Economics

    Abstract

    The acquisition of a partial stake in a target firm has been positively linked to the likelihood that the target will be involved in a follow on full acquisition involving either the original bidder or a third party bidder. Existing studies provide only suggestive evidence of this linkage by comparing the abnormal returns to partial targets that are ultimately acquired to those that are not. Using a sample of partial acquisitions, we identify characteristics that impact the probability of a full acquisition and provide a tangible link between partial target gains and the ex ante probability of acquisition. Partial targets experience positive announcement effects, and the gains are greater for subsequently acquired targets. Partial bids initiated by corporate bidders are more likely to result in a full acquisition, and the size of the acquired stake and the level of institutional ownership are positively linked to the probability of acquisition. Further, the partial target gains are positively linked to the ex ante probability of acquisition even after controlling for any increased monitoring and discipline that the partial bidder is expected to impose. The findings are robust across various time horizons and model specifications. (C) 2007 Published by Elsevier B.V.

    Journal Title

    Journal of Banking & Finance

    Volume

    31

    Issue/Number

    10

    Publication Date

    1-1-2007

    Document Type

    Article

    Language

    English

    First Page

    3080

    Last Page

    3101

    WOS Identifier

    WOS:000250349400007

    ISSN

    0378-4266

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