Title: Takeovers of targets lacking analyst coverage

Authors: Jeff Madura, Thanh Ngo, Nivine Richie

Addresses: Department of Finance, Florida Atlantic University, College of Business, Boca Raton, FL 33432, USA. ' Department of Economics and Finance, The University of Texas – Pan American, 1201 W. University Drive, Edinburg, TX 78593, USA. ' Department of Economics and Finance, University of North Carolina Wilmington, 601 South College Road, Wilmington, NC 28403, USA

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.

Keywords: mergers; acquisitions; event study; equity analyst coverage; takeovers; uncovered targets.

DOI: 10.1504/IJCG.2009.029372

International Journal of Corporate Governance, 2009 Vol.1 No.3, pp.298 - 314

Published online: 28 Nov 2009 *

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