Corporate takeovers: mode of payment, returns and trading activity

Paul Draper, Krishna Paudyal

Research output: Contribution to journalArticle

45 Citations (Scopus)

Abstract

This paper examines the impact of takeover bids and, in particular, the method of payment to the shareholders of the target firms on the returns, trading activity and bid‐ask spreads of target and bidding firms traded on the London Stock Exchange. It suggests that the shareholders of target firms benefit substantially from takeover activity while the shareholders of bidding firms do not suffer. The combined value of the firms engaged in takeover activity increases by a small percentage during the event period. However, the benefit from a takeover announcement to the shareholders of the target firm varies from year to year and has declined in the recent past. The magnitude of excess returns available to the shareholders is also dependent on the mode of payment. Prices of target (bidding) firms increase (decrease) most if the shareholders of the target firms are given an option to receive payment in shares or in cash. The findings also reveal that during the event period trading activity in target and bidding companies increases depending on the form in which payments to shareholders are made. In response to this increased liquidity, the bid‐ask spreads of target and bidding firms decline during the event period.
LanguageEnglish
Pages521-558
Number of pages38
JournalJournal of Business Finance and Accounting
Volume26
Issue number5-6
DOIs
Publication statusPublished - 31 Jul 1999

Fingerprint

Trading activity
Corporate takeovers
Payment
Shareholders
Bidding
Bid/ask spread
Excess returns
Method of payment
Cash
Takeover bids
London Stock Exchange
Liquidity
Announcement

Keywords

  • takeover
  • mode of payment
  • bid-ask spreads
  • excess returns
  • trading activity

Cite this

@article{9089c4f5dfe941fd96e0445ae052df65,
title = "Corporate takeovers: mode of payment, returns and trading activity",
abstract = "This paper examines the impact of takeover bids and, in particular, the method of payment to the shareholders of the target firms on the returns, trading activity and bid‐ask spreads of target and bidding firms traded on the London Stock Exchange. It suggests that the shareholders of target firms benefit substantially from takeover activity while the shareholders of bidding firms do not suffer. The combined value of the firms engaged in takeover activity increases by a small percentage during the event period. However, the benefit from a takeover announcement to the shareholders of the target firm varies from year to year and has declined in the recent past. The magnitude of excess returns available to the shareholders is also dependent on the mode of payment. Prices of target (bidding) firms increase (decrease) most if the shareholders of the target firms are given an option to receive payment in shares or in cash. The findings also reveal that during the event period trading activity in target and bidding companies increases depending on the form in which payments to shareholders are made. In response to this increased liquidity, the bid‐ask spreads of target and bidding firms decline during the event period.",
keywords = "takeover, mode of payment, bid-ask spreads, excess returns, trading activity",
author = "Paul Draper and Krishna Paudyal",
year = "1999",
month = "7",
day = "31",
doi = "10.1111/1468-5957.00266",
language = "English",
volume = "26",
pages = "521--558",
journal = "Journal of Business Finance and Accounting",
issn = "0306-686X",
number = "5-6",

}

Corporate takeovers : mode of payment, returns and trading activity. / Draper, Paul; Paudyal, Krishna.

In: Journal of Business Finance and Accounting, Vol. 26, No. 5-6, 31.07.1999, p. 521-558.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Corporate takeovers

T2 - Journal of Business Finance and Accounting

AU - Draper, Paul

AU - Paudyal, Krishna

PY - 1999/7/31

Y1 - 1999/7/31

N2 - This paper examines the impact of takeover bids and, in particular, the method of payment to the shareholders of the target firms on the returns, trading activity and bid‐ask spreads of target and bidding firms traded on the London Stock Exchange. It suggests that the shareholders of target firms benefit substantially from takeover activity while the shareholders of bidding firms do not suffer. The combined value of the firms engaged in takeover activity increases by a small percentage during the event period. However, the benefit from a takeover announcement to the shareholders of the target firm varies from year to year and has declined in the recent past. The magnitude of excess returns available to the shareholders is also dependent on the mode of payment. Prices of target (bidding) firms increase (decrease) most if the shareholders of the target firms are given an option to receive payment in shares or in cash. The findings also reveal that during the event period trading activity in target and bidding companies increases depending on the form in which payments to shareholders are made. In response to this increased liquidity, the bid‐ask spreads of target and bidding firms decline during the event period.

AB - This paper examines the impact of takeover bids and, in particular, the method of payment to the shareholders of the target firms on the returns, trading activity and bid‐ask spreads of target and bidding firms traded on the London Stock Exchange. It suggests that the shareholders of target firms benefit substantially from takeover activity while the shareholders of bidding firms do not suffer. The combined value of the firms engaged in takeover activity increases by a small percentage during the event period. However, the benefit from a takeover announcement to the shareholders of the target firm varies from year to year and has declined in the recent past. The magnitude of excess returns available to the shareholders is also dependent on the mode of payment. Prices of target (bidding) firms increase (decrease) most if the shareholders of the target firms are given an option to receive payment in shares or in cash. The findings also reveal that during the event period trading activity in target and bidding companies increases depending on the form in which payments to shareholders are made. In response to this increased liquidity, the bid‐ask spreads of target and bidding firms decline during the event period.

KW - takeover

KW - mode of payment

KW - bid-ask spreads

KW - excess returns

KW - trading activity

UR - http://www.scopus.com/inward/record.url?scp=0345215806&partnerID=8YFLogxK

UR - https://onlinelibrary.wiley.com/journal/14685957

U2 - 10.1111/1468-5957.00266

DO - 10.1111/1468-5957.00266

M3 - Article

VL - 26

SP - 521

EP - 558

JO - Journal of Business Finance and Accounting

JF - Journal of Business Finance and Accounting

SN - 0306-686X

IS - 5-6

ER -