Get access

Predicting European Takeover Targets

Authors


  • We are grateful to an anonymous referee for his detailed and constructive comments. The comments of the Editor (John Doukas) are also acknowledged. All remaining errors are our own. Correspondence: M. Liodakis.

Abstract

This article extends the Palepu (1986) acquisition likelihood model by incorporating measures of a technical nature, e.g. momentum, trading volume as well as a measure of market sentiment. We use the proposed model to predict takeover targets in a large sample of European and cross-border merger and acquisition deals and validate its performance on an in- and out-of-sample basis. The robustness of the proposed model is investigated across several dimensions. In addition we explore the ability of the model to form the basis of successful takeover timing investment strategies. The results of our empirical analysis suggest that the proposed model predicts European takeover targets with relatively high accuracy and is able to determine portfolios that earn significant returns which are not explained by conventional risk factors.

Ancillary