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This paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015.

Using survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates.

This paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover.

Given the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy.

While the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.

This paper examines the relation between takeover likelihood and the documented underperformance of distressed company stocks while exploring two competing hypotheses. The failure risk explanation predicts lower returns to distressed firms with high probability of being acquired because the acquisition reduces risk and investors' required return. Conversely, the agency conflicts explanation predicts lower returns when acquisition is unlikely.

The likelihood of receiving a takeover bid is estimated, and portfolio tests explore the underperformance of distressed company stocks relative to non-distressed stocks across varying levels of takeover likelihood. Predictive regressions subsequently examine the relation between distress, takeover exposure and future firm operating performance including how the relation is affected by state anti-takeover laws.

Distressed stocks underperform non-distressed company stocks by economically and statistically significant margins when takeover likelihood is low, yet there is no evidence of underperformance among distressed stocks with moderate or high takeover exposure. Consistent with agency conflicts playing a key role, distressed firms that are disciplined by takeover threats invest more, use more leverage and experience higher future profitability. State-level anti-takeover legislation limits this disciplinary effect, however.

The results show that the well-documented distress anomaly is driven by a subset of distressed firms whose managers face limited pressure from the external takeover market. The evidence casts doubt on the failure risk explanation and suggests that agency conflicts play a key role.

The purpose of this paper is to propose various toehold indicators and analyse whether the models incorporating these indicators can be used to establish investment strategies.

Logistic regression is used to test toehold indicator significance.

The results reflect that the designed measures are positively correlated to the likelihood of launching a takeover, although the power of the models to predict out‐sample takeovers is moderate, between 60.71 percent and 71.59 percent. The indicators allow us to design strategies which offer positive abnormal returns. In particular, abnormal return over the Fama‐French factors is 0.5 percent.

Toeholds are used to initiate takeover processes. As previous studies have indicated, a toehold increases the likelihood of success in a tender offer. Nevertheless, the studies on takeover prediction do not include the toehold since it is a variable which is unobservable prior to the announcement of a takeover bid.

Poison pill adoption is often considered as the most effective tactic to fend off an unsolicited takeover bid. However, it is difficult to identify the deterrent effect because the adoption is naturally endogenous. The purpose of this paper is to use plausibly exogenous instruments to mitigate the endogeneity problem.

The author employs two econometric models: the linear probability model and the bivariate probit model to examine the effect of poison pills on the outcome of a takeover.

Using a sample of 655 unsolicited takeovers, the author finds that poison pills substantially reduce the likelihood that a takeover bid, once undesirably placed, is completed. This negative impact strongly supports the manager entrenchment hypothesis in that managers adopt poison pills to ensure the continuation of their private benefits. However, the author finds no strong evidence consistent with the shareholder interest hypothesis that poison pills enhance the management’s ability to negotiate higher premiums or reject inadequate offers.

The demise of the market for unsolicited takeovers with the disappearance of poison pills can be explained by the fact that poison pills, if adopted, will have an absolute deterrent effect on the takeover likelihood of success, and targets always have the power to adopt them instantly.

There should be policies to limit the power of managers to adopt poison pills because it causes the entrenchment problem which will negatively affect the firm value.

The author tackles the problem of the endogeneity of poison pill adoptions. The author shows that poison pills have a strong negative effect on the takeover outcome and the result can explain the decreasing number of unsolicited takeovers.

This study proposes a qualitative analysis to identify takeover target criteria according to French Mergers and Acquisitions (M&A) practitioners.

A principal component factor analysis, applied to responses from 42 French M&A practitioners, highlighted four factors that summarize information about predictive variables and which explain the occurrence of takeover.

According to the surveyed practitioners, four main axes explain 83% of the occurrence of takeover. These axes reflect motivations related to the undervalued target theory, synergy theory and agency theory. The first factor defined by the size of the company, its rate of return and turbulence in the sector. A second factor opposed market value and dividend payout ratio to the liquidity variable. The last two factors are called the debt factor, structured by the debt variable and the value creation factor, which opposed the value creation variable and transaction volume to the growth opportunities variable. The results therefore confirmed the importance of some predictor variables tested in previous studies and showed different results.

This study was limited in terms of sample size. The low number of responses obtained reflects the sensitivity of the subject, insofar as it highlights the predictive model used by M&A practitioners (professional secrecy). Future investigations will involve in extending the questionnaire approach to a larger sample of continental European M&A practitioners.

Predicting takeover targets has been the subject of abundant literature. The results do not converge and are sometimes contradictory. This paper undertakes a field study conducted using a questionnaire survey to detect predictive variables used by M&A practitioners in their identification of a target firm. The authors aim to identify a relevant indicators favorable to the occurrence of a takeover bid and which are/or not handled by the literature.

The purpose of this paper is to examine the effectiveness of hedge fund activism (HFA) in preventing corporate policy deviations.

This paper identifies HFA interventions through a hand-collected sample of Schedule 13D filings between 1994 and 2016, and uses mechanical mutual fund fire sales as the instrument variable (IV) for the likelihood of such interventions. Armed with the instrument, this paper estimates firm's distribution, managerial compensation and investment policies in response to a change in the perceived likelihood of HFA interventions.

An increase in the HFA intervention likelihood leads to increases in shareholder distribution, decreases in CEO pay and investments and increases in operating performance. Compared to the sample average, a one standard deviation increase in the intervention likelihood leads to a 9.29% increase in the firm's payout ratio, a 7.42% decrease in CEO compensation, a 2.67% decrease in capital expenditures and a 4.96% decrease in R&D expenses. These changes are consistent with the threat of intervention curbing managerial empire-building behaviors and improving firm operation. The relationships are causal, significant and robust to a variety of alternative specifications and sample divisions.

Results of this paper suggest that as a mechanism for corporate governance, the threat of HFA is effective in preventing corporate policy deviations. They also demonstrate a stronger and broader impact of HFA on corporate policy than previously documented. By showing that HFA is an effective and viable mechanism for corporate governance, this study allows policymakers to make more informed decisions to whether increase hedge fund regulations or not.

The purpose of this research is to highlight the financial characteristics of large French targets which were subject to takeovers during the period 2001–2007 and thereafter deduct the implicit motivations of acquirers.

Using a global sample of 128 French listed companies (64 targets and 64 non-targets), the authors carried out Wilcoxon–Mann–Whitney testing and logistic regression in order to test nine hypotheses likely to discriminate between the two categories of companies (targets and non-targets).

According to the results, target firms are more unbalanced in terms of growth resources and less rich in liquidity than their peers. They have unused debt capacity, offer greater opportunities for growth than firms in the control group and present low levels of value creation.

The main limitation of this study is regarding the sample size, limited by the exclusive use of large firms (deals of over $100m). The scope of this research could be broadened in future by including medium-sized companies.

The authors believe that their results have two major implications. First, they enable market investors to achieve abnormal returns by investing in predicted targets through a portfolio of high takeover probability firms. Second, CEO of companies that are potentially targeted can assess their takeover likelihood in order to act and to manage such a situation for the benefit of their shareholders.

This research concerns the last wave of takeover prior to the subprime-mortgage financial crisis (2001–2007), a period that has not been sufficiently covered in empirical studies. This research contributes to the existing literature in two main respects. First, the results of this study improve our understanding of motivations for takeovers, particularly in the French context. Second, the introduction of new accounting and financial variables, not previously tested in the literature, enriches the available information concerning the profile of takeover targets.

The main purpose of this study is to examine the possibility of prediction of Greek takeover targets that belong to the industrial sector, emphasizing the econometric methodology and the prediction test.

The study uses a sample of 51 targets and 290 non‐targets exclusively from Greek industry over the period 1997‐2005. In order to achieve a better predictive accuracy the paper uses a new econometric methodology, the bootstrap mixed logit and different (more advanced) techniques of prediction test and choice of cutoff values.

The results exhibit that bootstrap mixed logit has significant and valuable predictive ability with respect to the classical conditional logit model. Furthermore, the predictive accuracy is higher than the results of other studies (e.g Palepu and Espahbodi and Espahbodi).

The main contribution of this study is the application of the bootstrap mixed logit in analyzing Greek takeovers. The results change the prediction variables as well as the determinants of the takeover target characteristics for the Greek industry. This is meaningful, not only for the investors that seek to increase the value of their fortune through acquisitions, but also for the managers that can detect if their firm might be considered a takeover target.

This paper aims to review prior studies and presents a synthesis of the takeover prediction literature spanning the period 1968–2018.

The paper adopts a narrative review approach. It explores prior studies on takeover target prediction from a historical perspective, focusing on the evolution and development of the literature over the 50-year period.

From a historical development perspective, prior studies in the area can be partitioned into four distinct eras. Studies in the first era (1968–1985) mainly established that takeover targets share common characteristics which can be captured with financial ratios. Studies in the second era (1986–2002) developed and extended formal target prediction hypotheses. These studies concluded that it was impossible to build a successful investment strategy around takeover target prediction. Studies in the third era (2003–2009) explored similar questions using alternative modelling techniques but arrive at similar results – targets can be predicted with limited accuracy and target prediction is unlikely to lead to abnormal returns. Studies in the fourth era (2010–2018) explore implications of M&A predictability on share valuation, governance and bond prices (amongst others), but most importantly, provide some evidence that takeover prediction can lead to abnormal returns when combined with appropriate screening strategies.

This presents the first in-depth review of the literature on takeover target prediction. It highlights the development of the literature over four distinct eras and identifies several limitations, research gaps and opportunities for future research. Given the recent decline in the literature (i.e. fourth era), this study may stimulate new research in the area.

The firm size hypothesis – takeover likelihood (TALI) decreases with target firm size (SIZE) – has enjoyed little traction in the TALI modelling literature; hence, this paper aims to redevelop this hypothesis while taking account of prevailing market conditions – capital liquidity and market performance.

The study uses a logit modelling framework to model TALI. Model performance is assessed using receiver operating characteristic (ROC) curve analysis. The empirical analysis is based on a UK sample of 34,661 firm-year observations drawn from 3,105 firms and 1,396 M&A deals over a 30-year period (1987-2016).

While acquirers generally seek smaller targets because of transaction cost constraints, the paper shows that the documented negative relation between SIZE and TALI arises from sampling bias. Over a full sample, mid-sized firms are most at risk of takeovers. Additionally, market conditions moderate the SIZE–TALI relationship, with acquirers more inclined to pursue comparatively larger targets when financing costs are low and market growth or sentiment is high. The results are generally robust to endogeneity.

Sample truncation on the basis of SIZE leads to empirical misspecification of the TALI–SIZE relation. In an unbiased sample, an inverse U-shaped specification between TALI and SIZE sufficiently models the underlying relation and leads to improvements in the predictive ability of TALI models.

This study advances a new firm size hypothesis which is consistent with classic M&A theories. The study also evidences market conditions as a moderator of the acquirer’s choice of target SIZE. A new model specification which recognises the non-linear relation between TALI and SIZE and accounts for the moderating effect of market conditions on the SIZE-TALI relationship leads to improvements in the performance of TALI prediction models.