Title: The returns to bidding firms in corporate takeovers: splitting up the pie

Authors: Han Donker, Saif Zahir

Addresses: College of Science and Management, University of Northern British Columbia, 3333 University Way, Prince George, British Columbia, V2N 4Z9, Canada. ' College of Science and Management, University of Northern British Columbia, 3333 University Way, Prince George, British Columbia, V2N 4Z9, Canada

Abstract: In this paper, we examined the impact of ownership concentration in target firms on the returns to shareholders of bidding firms. In this research, we found that shareholders of bidding earn statistically significant positive abnormal returns surrounding takeover announcements. In addition, we found bidder returns of 4% over the event-window [−20, +20]. We showed that the degree of ownership concentration in target firms – measured by the Herfindahl-concentration index – significantly and positively affects the returns to bidding firms. These findings are consistent with the predictions of Grossman and Hart (1980), Bagnoli and Lipman (1988) and Holmstrom and Nalebuff (1992) takeover models.

Keywords: corporate takeovers; free-rider problem; corporate control; ownership structure; large shareholders; event study; shareholder returns; bidding firms.

DOI: 10.1504/IJBAAF.2009.023149

International Journal of Banking, Accounting and Finance, 2009 Vol.1 No.4, pp.340 - 357

Published online: 11 Feb 2009 *

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