Tobin's Q and the Gains from Takeovers



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    • Graduate School of Business, The University of Chicago. I have benefited from the comments and suggestions of Steve Kaplan, John McConnell, Andrei Shleifer, René Stulz, Rob Vishny, Marc Zenner, and an anonymous referee.


This paper analyzes the relation between takeover gains and the q ratios of targets and bidders for a sample of 704 mergers and tender offers over the period 1972–1987. Target, bidder, and total returns are larger when targets have low q ratios and bidders have high q ratios. The relation is strengthened after controlling for the characteristics of the offer and the contest. This evidence confirms the results of the work by Lang, Stulz, and Walkling and shows that their findings also hold for mergers and after controlling for other determinants of takeover gains.