Takeovers of targets lacking analyst coverage
by Jeff Madura, Thanh Ngo, Nivine Richie
International Journal of Corporate Governance (IJCG), Vol. 1, No. 3, 2009

Abstract: We hypothesise that the market for targets that are uncovered (do not receive analyst coverage) is not as competitive as the market for targets that are covered (receive analyst coverage). We find that valuation effects are more favourable (or less unfavourable) for bidders that pursue uncovered targets while controlling for other factors. Furthermore, the adverse effect of relatively large deal size on bidder valuation effects is reduced when the target is not covered. Overall, the results suggest that the market for uncovered targets is less competitive. While some bidders may screen these targets out because of their limited visibility, transparency and information, bidders that pursue uncovered targets may be able to extract hidden value, and therefore offset the high premium paid for targets.

Online publication date: Sat, 28-Nov-2009

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