CentER

Han Donker

Abstract:
Ownership structure: does it matter in takeovers? That has been the central focus of this thesis. Grossman and Hart introduced the free-rider problem in takeovers and show that atomistic target shareholders will take all the post-takeover value-improvements of the bidder when the bidder cannot dilute minority shareholders. Bagnoli and Lipman and Shleifer and Vishny show that if target shareholders are pivotal respectively have a toehold, then the bidder can overcome the free-rider problem. In this study we describe and analyze the microeconomic structure of the takeover market. We analyze the supply and demand factors of the takeover process using management, institutional, and outside shareholdings in target firms as variables that determine the supply side of the takeover market. The demand side is determined by the initial shareholdings of the bidder and competition between bidders. This empirical study investigates the effects of the ownership structure of target firms on the returns to shareholders of bidding and target firms in corporate takeovers. We find support for the relation between the degree of ownership concentration in target firms and the returns to shareholders of bidding and target firms. We show a statistically significant negative relationship between the degree of ownership concentration in target firms and the cumulative abnormal returns to their shareholders. Furthermore, we find a statistically significant positive relationship between the degree of ownership concentration in target firms and the cumulative abnormal returns to the shareholders of the bidding firm. Our study contributes to the literature of an upward-sloping supply curve. We find a statistically significant positive relationship between the percentage of shares acquired and the cumulative abnormal returns to target shareholders. Finally, we investigate the determinants of the probability that an offer succeeds. We find that not only the ownership structure of target firms, but also the target size, toeholds, competition and the bid premium, have a statistically significant influence on the probability of an offer's success.