2Motivations and Economic Role of Takeover Bids: a Theoretical and Empirical Characterization

According to financial theory, all investments undertaken should maximize the firm’s value and, thereby, its shareholders’ assets. A takeover bid corresponds to an investment decision and should result in value creation for shareholders of companies involved in the operation. To evaluate value creation (or destruction) associated with a takeover bid, the abnormal returns of securities of companies involved in the transaction are appraised. Most empirical studies dealing with the impact on assets of takeover bids could not reject the hypothesis of an abnormal performance of the acquiring companies which is equal to zero. This observation leads to the question on the necessity of takeover bids: if these operations are not beneficial to the acquiring companies, what are their real motivations?

Motivations for takeover bids have a classification problem and are often complex. Takeover bids are not often explained by a single reason, but by a number of motivations, sometimes complementary and sometimes contradictory. The main motivation for these transactions that is often mentioned by managers to justify the bid is the economic or financial synergy. Companies can opt for a merger or acquisition for the sake of diversification by entering other sectors. There are other motivations for takeovers with less economic backing, like hubris or the pride of managers and search for private benefit. ...

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