Does the ‘Market for Corporate Control’ hypothesis explain takeover targets?

Abstract

This study tests the ‘Market for Corporate Control’ hypothesis in a small open economy. The results appear to favour rejection of this hypothesis indicating that acquisitions have not been driven by managerial-disciplinary motives. Moreover, it is found that a logit model outperforms other statistical tests.

Notes

¹ According to Palepu (1986), state-based sampling means that n ₁ firms are drawn from the target subpopulation N ₁ and n ₂ firms are drawn from the non-target sub-population N ₂. State-based sampling outperforms the technique of random sampling, where n firms are drawn randomly from the entire population N. This technique would create a sample with very few targets or none, with consequent bias in parameter estimates.

² In the case of T-test, a Levene-test was used to test for equality of variances in the two populations.