Does takeover competition affect acquisition choices and bidding firm performance? Australian evidence

Robert W. Faff, Abeyratna Gunasekarage, Syed M.M. Shams

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

We examine the influence of takeover competition on three acquisition choices: (i) public versus private target acquisitions; (ii) stock versus cash financed acquisitions; and (iii) related versus unrelated acquisitions. We find strong evidence of acquirers’ preference for public targets, stock swaps and business focus, in the face of takeover competition. Further, we find that the takeover competition has a positive influence on the bid premium paid to acquirer public targets and those financed with stock issues; competitive bids offered to acquire related targets are associated with significantly low bid premiums. In the short-term announcement window, competition-induced bids to acquire public targets and those financed with stock are penalised by the capital market. However, only stock-financed takeovers undertaken in a competitive takeover market show a long-run decline in performance of acquirers.

Original languageEnglish
Pages (from-to)3581-3619
Number of pages39
JournalAccounting & Finance
Volume60
Issue number4
DOIs
Publication statusPublished - Dec 2020

Keywords

  • Acquisition choices
  • Long-run operating performance
  • Mergers and acquisitions
  • Short-term market performance
  • Takeover competition

Cite this