Publicação
Do cash holdings protect firms from a takeover bid?
| Resumo: | In my research, I study the relationship between a firm’s cash holdings and its probability of being acquired. The sample consists of 428 Euro zone targets, of which 13 are hostile targets, between 2000 and 2015 and includes a control sample that were not targets of acquisitions during the period. In the literature the conventional wisdom states that firms with more cash holdings are more likely to be targets of mergers & acquisitions (M&A) because they are more liquid and attractive to potential buyers. Alternatively, Pinkowitz (2002) finds the opposite result and argues that, due to agency costs of excessive cash, cash-rich firms are less likely to be acquired. In support of this view, and contradicting the conventional wisdom, I find, for the group of firms with poor growth opportunities, evidence that higher levels of cash holdings decreases the likelihood of being targets. However, in the overall sample, this result is not robust as I only find some marginal evidence to support this view. In contrast, using the overall sample, I do find that higher levels of negative excess cash reduce the probability of being a target. I also find that firms with less cash holdings are exposed to a higher probability of an acquisition being successful. In addition, I test whether targets firms with high cash holdings are more likely to have higher bid premiums, which I find to be an accurate statement, supporting Stulz’s (1988) research. |
|---|---|
| Autores principais: | Rodrigues, Sónia Daniela Paredes |
| Assunto: | Targets Mergers and acquisitions Probability of acquisition Cash holdings Bid premium Dinheiro em caixa Alvos de fusões e aquisições Probabilidade de aquisição Prémio de oferta |
| Ano: | 2017 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade do Minho |
| Idioma: | inglês |
| Origem: | RepositóriUM - Universidade do Minho |
| Resumo: | In my research, I study the relationship between a firm’s cash holdings and its probability of being acquired. The sample consists of 428 Euro zone targets, of which 13 are hostile targets, between 2000 and 2015 and includes a control sample that were not targets of acquisitions during the period. In the literature the conventional wisdom states that firms with more cash holdings are more likely to be targets of mergers & acquisitions (M&A) because they are more liquid and attractive to potential buyers. Alternatively, Pinkowitz (2002) finds the opposite result and argues that, due to agency costs of excessive cash, cash-rich firms are less likely to be acquired. In support of this view, and contradicting the conventional wisdom, I find, for the group of firms with poor growth opportunities, evidence that higher levels of cash holdings decreases the likelihood of being targets. However, in the overall sample, this result is not robust as I only find some marginal evidence to support this view. In contrast, using the overall sample, I do find that higher levels of negative excess cash reduce the probability of being a target. I also find that firms with less cash holdings are exposed to a higher probability of an acquisition being successful. In addition, I test whether targets firms with high cash holdings are more likely to have higher bid premiums, which I find to be an accurate statement, supporting Stulz’s (1988) research. |
|---|