Does Transparency Increase Takeover Vulnerability?

Does Transparency Increase Takeover Vulnerability?

Lifeng Gu, Dirk Hackbarth

Series number :

Serial Number: 
570/2018

Date posted :

August 27 2018

Last revised :

August 18 2018
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Keywords

  • Corporate governance • 
  • takeovers • 
  • Transparency • 
  • stock returns

We study how transparency affects takeover probability and hence stock returns. If transparency helps acquiring firms to determine target value or synergy, then it can increase takeover vulnerability. Estimated takeover probabilities produce results consistent with this view and offer better fit over 25 years of takeover data.

We find that higher takeover likelihood is associated with higher returns after we adjust for common risk factors. Finally, a takeover factor constructed as a return to a long-short portfolio buying firms with high takeover probability and selling firms with low takeover probability better captures variation in the cross-section of stock returns.
 

Authors

Real name:
Lifeng Gu