THE FINANCIAL PROFILES OF TAKEOVER TARGET FIRMS AND THEIR TAKEOVER PREDICTABILITY: AUSTRALIAN EVIDENCE

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Shu Wen Cai, Balasingham Balachandran ORCID logo, Michael Joseph Dempsey ORCID logo

DOI:10.22495/cocv8i3c6p1

Abstract

We investigate those features of Australian firms that make them likely takeover targets. To this end, we apply a logit probability model similar to the one developed by Palepu (1986). Our findings reveal that takeovers are most likely to be motivated by market under-valuation combined with high levels of tangible assets. Takeover targets may also be financially distressed with high levels of leverage and low liquidity, and may exhibit declining sales growth with decreasing profitability. Notwithstanding these insights, we find that the prediction models are unable to provide abnormal returns with a high statistical significance, thereby lending support to market efficiency.

Keywords: Corporate Takeovers, Takeover Predictability, Palepu Model

How to cite this paper: Cai, S. W., Balachandran, B., & Dempsey, M. (2011). The financial profiles of takeover target firms and their takeover predictability: Australian evidence. Corporate Ownership & Control, 8(3-6), 567-584. http://dx.doi.org/10.22495/cocv8i3c6p1