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Firms Size and Gains from Acquisition


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Firms Size And Gains From Acquisition

By Santosh Singh Vasudev
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Firms Size And Gains From Acquisition




Predictable Hypothesis


Data And Methodology






Abnormal Performance Measure


Test Statistics


Empirical Findings






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Firms Size And Gains From Acquisition

1. Takeovers are one of the most important events in corporate finance, both for a firm and the economy. Extensive research has shown that shareholders in bidding firms gain significantly and that wealth is created at the announcement of takeovers i.e., combined bidder and target returns are positive.
2. Our main focus is on examining the returns to acquirer’s i.e. large and small firms, making bids for public, private, and subsidiary targets, using cash and stock, and seeing how the acquirers’ returns vary by these characteristics and the acquirer’s size. Our study enables us to provide new evidence on what bidder returns tell us about takeovers. Therefore, our sample provides a fruitful testing ground for probing the meaning of returns to acquirers.

I. Predictable Hypothesis

A. Investment Opportunity Hypothesis
3. Myers (1977) links the existence of growth opportunities and corporate borrowing activity. In his model, a firm's borrowing is inversely related to the extent that the firm's value depends on the value of future investment opportunities. This result implies that the spending to undertake valuable future investment opportunities may not occur. The future economic conditions that the firm faces in the future may be unfavourable for the firm to undertake investment.

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