Synergy Motivation and Target Ownership Structure: Effects on Takeover Performance

Transcription

1 Synergy Motvaton and Target Ownershp Structure: Effects on Takeover Performance Han Donker, School of Busness, Unversty of orthern Brtsh Columba, Canada Alex g, School of Busness, Unversty of orthern Brtsh Columba, Canada ABSTRACT In ths research, we fnd statstcally sgnfcant postve abnormal returns around takeover announcements for combned frms. The cumulatve average abnormal returns for combned frms are 4.62% over the event-wndow [-20, +20], whch suggests that takeovers create shareholder wealth (synergy motve). In addton, we examne the mpact of ownershp structure n target frms on the abnormal returns to shareholders of combned frms. We show that management shareholdngs have a sgnfcant negatve mpact on the returns to shareholders of combned frms (entrenchment). Insttutonal shareholdngs and outsde block holdngs have a sgnfcantly postve nfluence on the abnormal returns to shareholder of combned frms. These results suggest that montorng by large nsttutonal shareholders and other outsde shareholders ncrease the abnormal returns to shareholders of the combned frm. Furthermore, competton between bdders ncreases the abnormal returns to shareholders of combned frms. Competton between bddng frms mght sgnal to hgh valuaton bdders the avalablty of hgh, non-frm-specfc synergstc gans. The postve relaton between the market-to-book value of the target and the returns to shareholders of the combned frm ndcate that the target frm has large growth opportuntes, whch wll ncrease the value of the combned frm. ITRODUCTIO The most commonly used argument for takeovers s synergy. The synergy motve for takeovers suggests that takeovers occur because of ncremental gans that result from combnng the resources of the bddng and target frms. The synergy motve for takeovers s based on wealth creaton, whle other motves such as: agency and hubrs are manly about redstrbutng wealth. For example, n agency theory redstrbuton of wealth occurs between managers and shareholders, and also between shareholders and bondholders. Frms can realze synergy through a better use of ther assets (economes of scale) or by sharng common assets (economes of scope). Roll (988) argues that the synergy motve holds when both frms create ncremental value. Synergy gans from takeover are elusve. How can we fnd t? The topc of merger and acquston (M & A) performance near announcement s well studed n the lterature for more than three decades. Bruner (2002) summarzes that acqurers earn zero abnormal returns or lose; abnormal gans accrue to the target. Ths lterature suggests that synergy motvatons are generally ether not present or not realzable. Synergy s valuable because t motvates takeovers that create value; and t gves ncentves for ndustres to nnovate, gan effcences and consoldate. However, the general concluson of the absence of synergy evdence n much of the lterature s based on studes on takeovers n the Unted States and Unted Kngdom. There are studes (Yuce and g, 2005) that consstently show synergy motvatons exst such as takeovers n Canada because announcement effects result n ncreases n shareholder wealth. Indeed, ths mples that a country s poltcal, busness, and regulatory context can support a frm s synergy motvatons to make takeovers. Hence, t s valuable to study for evdence of synergy motvatons n takeovers. Lke n many countres, t s possble that takeovers n a country lke the etherlands could be motvated by synergy reasons, yet there s a scarcty of research on takeover performance on Dutch companes. Therefore, ths study examnes the wealth effects of announcements of Dutch takeovers. In IPOs (Intal Publc Offerngs), Roosenboom and van der Goot (2005) conclude that frm value s postvely related to ownershp structure, namely management shareholdngs and large shareholders. These factors are theorzed to reduce agency costs. Indeed, recent advances n the M & A lterature are payng attenton to the role of ownershp structure n explanng takeover performance. There are dfferent shareholder owners whch nclude managers, executves, nsttutonal and block holders, and the presence and amount of shareholdng by any partcular group s found to nfluence performance. The queston s whch type of ownershp matters? Changes n ownershp (Akhgbe et al., 2004), block holder ownershp (Facco et al., 2006), and famly ownershp (Ben-Amar and Andre, 2006) are found to nfluence takeover performance. Kohers and Kohers (200) conclude that bdder ownershp structure wth hgh potental for agency problems s related to poor post-merger performance. Yet, despte these studes, a gap exsts n understandng ownershp structure and performance ssue. Current studes only examne ownershp structure wthn the acqurng frm to explan performance; none of these studes examne ownershp structure wthn the target frm to explan performance. Therefore, ths study examnes the ownershp structure of target frms n explanng combned frm announcement returns. The Journal of Internatonal Management Studes, Volume 3, umber 2, August,

2 Ths study contrbutes to the strand of M & A lterature on takeover performance and motvatons by provdng evdence of synergy motvatons found n Dutch companes. Fndng synergy motvatons as a study s good news as ths s not the case n the majorty of takeover studes. That agan, dfferent country contexts contnue to explan dfferences n motvaton for takeovers. Ths study contrbutes to the strand of M & A lterature on ownershp structure and takeover performance by provdng new evdence that target ownershp structure nfluences performance. Specfcally, manageral ownershp s negatvely related to performance; whereas, large nsttutonal share owners and large block shareholders confer postve effects on performance. Hence, from ths study, a deeper theoretcal understandng of ownershp structure nfluences on performance s that performance s the result of a complex nterplay of dfferng objectves amongst dfferent shareholder groups wthn a company. That s, managers may have agency motvatons to entrench themselves to the company by makng takeovers whch undermne frm value. However, ths negatve motvaton s counterbalanced by large shareholders who are motvated to montor and dscplne such managers to protect ther shareholder wealth. Ths study s organzed as follows: the frst secton justfes and proposes ts hypotheses. The next secton descrbes the methodology and sample data used followed by a secton on emprcal results. The last secton concludes. HYPOTHESES Emprcal evdence suggests that shareholders of target frms receve most benefts from corporate takeovers (Jensen and Ruback, 983). Berkovtch and arayanan (993) and Romano (992) post that, under the condton of shareholder wealth maxmzaton, managers of bddng frms and target frms wll be nvolved n takeovers when both frms realze postve gans. They suggest that the gans to target shareholders ncrease wth total gans, when target shareholders have some barganng power or when bdders compete for the target frm. They argue that the gans to target shareholders, bddng shareholders, and combned frms are postvely correlated wth each other. Berkovtch and arayanan (993) fnd a postve correlaton between target and total gans n ther sub-sample of postve total gans. Ravenscraft and Scherer (987, 989) tend to more skeptcal assessment of the mprovement n operatng proftablty of tender offer takeovers. They fnd a deteroraton of the post-takeover operatng performance, whch s contrary to the synergy hypothess. The synergy motve mples that the returns to bdder and target frms, and also the returns of the combned frm wll be postve and postvely correlated wth each other. H: The Synergy motve s domnant, f the gans to target, bdder, and the combned frm are all postve. In addton, target and total gans are postvely correlated, and also target and bdder gans are postvely correlated. Roll (986, 988) ntroduces a behavoral motve for the takeover phenomenon, whch he terms the hubrs hypothess. Managers of bddng frms tend to overestmate the value of target frms because they beleve that they wll gan from synergy or the replacement of neffcent management. Roll s hubrs hypothess s strongly related to the wnner s curse that comes from aucton theory. When the valuaton of the target frm s uncertan to the management of the bddng frm, the manager wll wn who has the most overestmated value of the target frm. The hubrs hypothess predcts that the premum pad to target shareholders s negatvely related to the stock prce movements of the bddng frm. The returns to bddng frms wll be transferred to target shareholders. When the hubrs- hypothess holds, no postve total gans should be observed n takeovers. Berkovtch and arayanan (993), as well as Bradley, Km, and Desa (988), fnd some evdence for the hubrs hypothess. Varaya and Ferrs (987) fnd support for the wnner s curse n takeovers. They estmate a wnnng takeover premum that sgnfcantly overestmate the expected takeover gans. If the hubrs theory holds, then no postve gans wll be observed at all. Also the abnormal returns to bddng frms are negatve, and the abnormal returns to target frms are postve. The correlaton between the gans of target and bddng frms should be negatve, and there should be no correlaton between total gans and target gans, because the gans of the target are the result of a wealth transfer from the bddng frm to the target frm. H2: The hubrs motve s domnant, f the total gans are zero or slghtly negatve. In addton, the correlaton between target and bdder gans s negatve and the correlaton between target gans and total gans s zero. In agency theory, managers mght be drven by self-nterest to overpay for acqustons, because they use shareholders' money to make manager-specfc nvestments that wll bnd shareholders to themselves (Morck, Shlefer and Vshny,990), or use free cash flow to enlarge the frm (Jensen, 986). Because of such entrenchment nvestments the replacement of these managers s costly and managers mght clam a hgher rent from ther shareholders (Shlefer and Vshny, 989). If ncumbent management acqures a target frm, t wll try to ncrease the dependency of the bdder's shareholders on ther specfc sklls and knowledge. The management mght explot ths and ncrease perquste consumpton. Berkovtch and arayanan (993) argue that target shareholders can approprate a part of the management rent f they have some barganng power. The more severe agency problems are, the hgher the gans to target shareholders. Because management's rent reduces the total gans to shareholders, total gans and target gans are negatvely correlated. Severe agency problems n the bddng frm cause losses to the shareholders of the bdder. Morck, Shlefer and Vshny (988) argue that takeovers mght be deployed to beneft managers of bddng frms rather than ther shareholders. 48 The Journal of Internatonal Management Studes, Volume 3, umber 2, August, 2008

3 H3: The agency motve s domnant, f the correlaton between target gans and total gans s negatve. In addton, the correlaton between target and bdder gans s negatve, and also the total gans and bdder gans are negatve. Berkovtch and arayanan (993) develop testable hypotheses to dstngush between three takeover motves. Table presents the three motves for takeovers (synergy, hubrs, agency) and shows ther dstngushng hypotheses. Table. Motves for Takeovers: Synergy, Agency, and Hubrs Ths Table descrbes the correlaton between the returns of bddng frms, target frms and combned frms. Hypothess Correlaton Target vs Combned Returns Correlaton Bdder vs Target Returns Value Combned Frm Synergy Agency (-) (-) (-) Hubrs 0 (-) 0 or slghtly negatve METHODOLOGY AD DATA We compute abnormal returns usng event-study methodology. Daly stock returns are used to estmate the abnormal returns assocated wth the takeover event. For each securty we determne an estmaton perod and an event perod. The estmaton perod starts at tradng day -270 and ends at tradng day -2 relatve to the takeover event (t=0). The event perod starts 20 tradng days pror to the event day (t=0) through 5 tradng days after the frst announcement on the event day (t=0). For the frms on the Amsterdam Stock Exchange (AEX), we use the Herbeleggngs-Index as the benchmark ndex. For each securty, we estmate dfferent measures of abnormal returns AR, t. ) ) AR, t = R, t α + βrm, t Market model: ( ) where ) α and ) β are OLS values from the estmaton perod pror to the event wndow (270 to 2 tradng days before AAR t of the the frst bd announcement). To test the null hypothess (H 0 : AAR t =0) that the average abnormal return portfolo of frms n the sample for day t s equal to zero, we calculate a t-statstc by: t statstcs = s = AR t = s AARt and, where s 2 = ( ARt AARt) AARt = AR To test the null hypothess (H 0 : CAAR=0) that the daly abnormal return over the event wndow s equal to zero, we calculate the cumulatve abnormal returns (CARs) over the event nterval [ t,t2] : CAR = ARt ARt 2 [ t,t2] s the event perod. t : We employ the followng test statstcs for the event perod [,t2] Z CAR = car = = =, t CAAR s( CAR) s( CAR) = 2 CAAR = CAR = where s( CAR) s computed cross-sectonal on CAR. To measure combned abnormal returns (CARC) to target and acqurer shareholders, we calculate the combned cumulatve abnormal returns (CARC) as the sum of the market value of target (MVT) and bddng frm (MVA) 2 tradng days before the frst acquston announcement (t=0), tmes the cumulatve abnormal returns of target (CART) and respectvely the acqurng frm (CARA), dvded by the sum of the market value of equty of the acqurer MVA and the target (MVT) 2 tradng days before the frst announcement (t=0). The market value of target equty s adjusted for the fracton of target shares held by the acqurer TOE at the tme the acquston s announced (Bradley, Desa and Km (988), Houston and Ryngaert (992), and Eun, Kolodny and Scheraga (996)): The Journal of Internatonal Management Studes, Volume 3, umber 2, August,

4 MVA CARA + MVT CART ( TOE ) CARC = MVA + MVT ( TOE ) Where: MVT market value of the target frm 2 days before the announcement (t=0) of acquston ; MVA market value of the bddng frm 2 days before the announcement (t=0) of acquston ; TOE ntal shareholdngs of the bddng frm n acquston ; CARA cumulatve abnormal returns to the bddng frm from 20 tradng days before the acquston announcement through 20 tradng days after the announcement (t=0) of acquston ; CART cumulatve abnormal returns to the target frm from 20 tradng days before the acquston announcement through 20 tradng days after the announcement (t=0) of acquston. The OLS-regresson has the followng form: CARC = α 0 + α MA + α 2 IS + α 3 BLOCK + α 4 ACQ + α 5 SIZE + α 6 COMP + α 7 BMTB + α 8 BLEV + α 9 TMTB + α 0 TLEV + u Where: CARC Cumulatve abnormal returns of combned frms are measured by pooled samples of value-weghted abnormal returns of bddng and target frm. The cumulatve abnormal returns are based on the market model and are estmated over -20 to 20 tradng days surroundng successful acquston announcements (t=0). CARC s calculated as the sum of the market value of target and bddng frm 2 tradng days before the frst acquston announcement (t=0), tmes the cumulatve abnormal returns of target and respectvely the acqurng frm, dvded by the sum of the market value of equty of the bdder and the target 2 tradng days before the frst announcement (t=0). The market value of target equty s adjusted for the fracton of target shares held by the acqurer at the tme the acquston s announced; MA Management shareholdngs are defned as the total percentage of shares owned by members of the manageral board and the supervsory board of the target frm; IS Insttutonal shareholdngs are defned as the total percentage of shares owned by banks, nsurance companes, penson funds, nvestment companes, and venture captalsts; BLOCK Block holdngs are defned as shareholdngs held by outsde shareholders (other than managers or ACQ SIZE COMP BMTB BLEV TMTB TLEV u nsttutonal shareholders) who own more than 5 percent of the target shares; Acquston s defned as the percentage of all shares acqured by the bdder; Market-to-book s the market value dvded by the book value; Leverage s total debt dvded by total assets; Sze s the logarthm of the market value of the target 2 tradng days pror to the takeover announcement (t=0), dvded by the market values of the bdder 2 tradng days pror to the takeover announcement (t=0); Competton s a qualtatve varable that equals one f there are multple bdders, and equals zero otherwse; Market-to-book value of the bddng frm. Market-to-book value s the market captalzaton of the bddng frm dvded by total assets 2 tradng days before the announcement day (t=0); Leverage s defned as the total debt dvded by total assets of the bddng frm; Market-to-book value of the target frm. Market-to-book value s the market captalzaton of the target frm dvded by total assets 2 tradng days before the announcement day (t=0); Leverage s defned as the total debt dvded by total assets of the target frm; random error term RESULTS The sample contans acqustons over the perod on the Amsterdam Stock Exchange (AEX). For each acquston, we collect fnancal data for target and bddng frm from Datastream. Merger and acquston transactons, announcement days are collected from the Dutch Fnancal Tmes. Table 2 shows the descrptve statstcs of the sample. Insttutonal shareholders have the largest stake n the target frms (on average 2.46%). Table 2 also shows that the market-to-book rato for bddng and target frm s.59 and.50 respectvely. Table 2. Descrptve Statstcs Ths Table contans the summary statstcs of 42 combned frms lsted on the AEX. Management shareholdngs (MA) are the percentage of shares held by management; Insttutonal shareholdngs (IS) are the percentage of shares held by banks, nsurance companes, penson funds and other nsttutonal shareholders; Outsde block holdngs (BLOCK) are all other shareholders who own more than 5% of all outstandng shares; Total shares acqured (ACQ) s the percentage of all shares acqured by the bdder; Relatve sze (SIZE) s the market value of the target 2 days pror to the takeover announcement (t=0), dvded by the market values of the bdder 2 days pror to the takeover announcement (t=0);market-to-book value (BMTB) of the bddng frm s the market captalzaton of the bddng frm 50 The Journal of Internatonal Management Studes, Volume 3, umber 2, August, 2008

5 dvded by total assets 2 tradng days before the announcement day (t=0); Leverage (BLEV) s defned as the total debt dvded by total assets of the bddng frm; Market-to-book value (TMTB) of the target frm s the market captalzaton of the target frm dvded by total assets 2 tradng days before the announcement day (t=0); Leverage (TLEV) s defned as the total debt dvded by total assets of the target frm; Competton (COMP) s a qualtatve varable that equals one f there are multple bdders, and equals zero otherwse. Varable Mean Medan Mn Max Management shareholdngs (MA) Insttutonal shareholdngs (IS) Block holdngs (BLOCK) Total shares acqured (ACQ) Relatve Sze (SIZE) Market-to-Book value of bdder (BMTB) Leverage of bdder (BLEV) Market-to-Book value of target (TMTB) Leverage of target frm (TLEV) The cumulatve average abnormal returns for combned frms are calculated usng a value-weghted basket, where the weghts are equal to the market value of bddng frms and target frms 2 days before the announcement of the takeover. The results n Table 3 show that the abnormal returns to the combned frms are 2.5% over the preannouncement perod [-20, -], and 2.% over the post-announcement perod [,20]. Table 3 shows that the cumulatve abnormal returns around takeover announcements for combned frms are postve and statstcally sgnfcant. The cumulatve average abnormal returns for combned frms are 4.62% over the event-wndow [-20, +20], whch suggests that takeovers create shareholder wealth (synergy motve). Table 3. Abnormal Returns Under Dfferent Event Horzons Ths table reports the Cumulatve Average Abnormal Returns (CAAR) for combned frms durng dfferent event wndows based on market model returns. The estmaton of the CAAR for combned frms s based on a value-weghted CAAR of the th bddng frm and the th target frm, where the weghts used are the market value on day (t -) of event wndow [t, t 2 ]. Event Horzons: CAAR [-20, 20] [-20, -] [, 20] [-, 0, ] [-5, 5] CAAR t-test (2.59) *** (2.55) *** (.78) ** (0.83) (2.4) ** Postve (%) ***,**,* ote: ndcates sgnfcance at the %, 5%, and 0% levels, respectvely (one-taled test); We dscussed three motves for takeovers to nvestgate whch motve domnates n corporate takeovers: synergy, agency, and hubrs (nformaton asymmetry). Table 4 splts the total sample of combned frms nto two sub-samples: postve cumulatve average abnormal returns and negatve cumulatve average abnormal returns. To test whch motve s vald, we derve correlaton coeffcents between the CARs of bddng frms, target frms, and combned frms. Panel B of Table 4 shows that we fnd sgnfcantly postve correlaton coeffcents between CARs of target frms CART and combned frms CARC, and between bddng frm CARA and combned frms CARC. Table 4. Motves for Takeovers Ths Table contans the sample of combned frms, where we measure smultaneously abnormal returns of bddng frms and target frms. The CAARs of combned frms are measured by pooled samples of value-weghted abnormal returns of bddng and target frms. The values are based on the market values of bddng and target frms pror to the event perod. The sample of combned frms s splt up nto two sub-samples wth postve and negatve cumulatve abnormal returns. In Panel B, Pearson correlaton coeffcents are calculated between CARA, CART, and CARC. Panel A: Abnormal returns CAAR [-20,20] Total Postve egatve Bddng frms (2.54) *** (6.0) *** (-4.09) *** Target frms (4.27) *** (3.82) *** (2.00) ** Combned frms (2.59) *** (4.96) *** (-2.4) ** Panel B: Pearson correlaton coeffcents CARC CART CARC CART CARC CART Acqurer gans (CARA) 0.76 *** *** *** Target gans (CART) 0.54 *** 0.69 *** -0. The Journal of Internatonal Management Studes, Volume 3, umber 2, August,

6 otes: ***,**, * t-statstcs are n parentheses ndcates sgnfcance at the %, 5%, and 0% levels, respectvely (one-taled test). In Panel A of Table 5 we fnd a postve relaton between the target gans and the total gans for the regressons n the total sample and postve sample. In Panel B of Table 5 we fnd no sgnfcant relaton between the returns to bdders CARA and the returns to target frms CART. Our emprcal study suggests that the synergy motve domnates n our sample. But we should notce that the analyss s on a hgh level and other determnants mght also nfluence the takeover motves. Our results are consstent wth Berkovtch and arayanan (993). They fnd support for the synergy hypothess n ther sub-sample of postve total gans. Table 6 shows OLS-estmates, usng the abnormal returns of value-weghted portfolos of the bdder and the target as the dependent varable. The estmates of the OLS regresson show that nsttutonal shareholdngs (IS) and outsde block holdngs of the target frms (BLOCK) have a sgnfcantly postve nfluence on the cumulatve abnormal returns of combned frms (CARC). These fndngs suggest that large nsttutonal and outsde shareholders ntensvely montor ncumbent management. Furthermore, f management of the target frm (MA) has a stake n the target frm the abnormal returns of the combned frms are sgnfcantly negatve whch mght ndcate some form of manageral entrenchment. Table 5. Motves for Takeovers The Table shows estmates of OLS regressons between CARC, CART and CARA for dfferent sub-samples. Panel A: OLS regresson Total Postve egatve CART = α + β CARC sample Intercept (3.2) *** (0.68) (.4) * Coeffcent (4.0) *** (4.7) *** (-0.4) R² 29.6% 47.0%.3% F-statstcs 6.83 *** 22.5 *** 0.7 Panel B: OLS regresson CART = α + β CARA Total sample Postve egatve Intercept (3.55) *** (.83) ** (0.43) Coeffcent (.9) (0.79) (-.29) R² 3.4% 2.4%.3% F-statstcs otes: t-statstcs are n parentheses ***,**, * ndcates sgnfcance at the %, 5%, and 0% levels, respectvely (one-taled test). Table 6. Regresson Estmates of Combned Cumulatve Abnormal Returns Ths table contans OLS estmates of the effects of ownershp characterstcs of target frms, control varables, fnancal varables, market varables on the cumulatve abnormal returns of the value-weghted portfolo of target and bddng frms (CARC). The cumulatve abnormal returns are estmated over -20 to 20 days around successful acquston announcements (t=0). Please refer to page 5 for detaled explanaton of each varable. IDEPEDET VARIABLES OLS regresson t-statstcs Intercept (0.02) Management shareholdngs (MA) *** (0.204) Insttutonal shareholdngs (IS) *** (0.077) Outsde block holdngs (BLOCK) ** (0.048) Total shares acqured (ACQ) (0.052) Relatve sze (SIZE) (2.5) Competton (COMP) *** (6.08) 52 The Journal of Internatonal Management Studes, Volume 3, umber 2, August, 2008

7 Market-to-book value (BMTB) ** (.399) Leverage (BLEV) * (0.077) Market-to-book value (TMTB) ** (.04) Leverage (TLEV) (0.7) umber of observatons n=39 R² 39.43% F-statstcs 3.47*** ote: ***,**,* ndcates sgnfcance at the %, 5%, and 0% levels, respectvely (two-taled test); The coeffcent of the market-to-book varable of bddng frms (BMTB) s negatve. Ths s consstent wth Stulz, Walkng and Song (990) who estmated a sgnfcantly negatve coeffcent for the market value of the bdder. The coeffcent of the market-to-book varable of target frms (TMTB) s postve and sgnfcant. A hgh market-to-book value mght ndcate that the target frm has large growth opportuntes, whch wll ncrease the value of the combned frm. Ths result s consstent wth Stulz, Walkng and Song (990). Fnally, the estmated coeffcent on the competton dummy varable (COMP) s postve and sgnfcant. Ths s consstent wth the fndngs of Bradley, Desa and Km (988), Stulz, Walkng and Song (990) and Eun, Kolodny and Scheraga (996). The sgnfcantly postve coeffcent supports the vew that competton among bdders generates new nformaton to the market that potental benefts may be avalable. Ths wll attract hgh valuaton bdders, who can create hgh synergstc post-takeover gans.our fndngs show some form of manageral entrenchment, snce the coeffcent of manageral shareholdngs (MA) s sgnfcantly negatve. Furthermore, our results show that montorng by nsttutonal shareholders (IS) and outsde block holders (BLOCK) wll ncrease the returns to shareholders of the combned frm (CARC). The postve relaton between the market-to-book value of the target (TMTB) and the returns to shareholders of the combned frm (CARC) ndcates that the target frm has large growth opportuntes, whch wll ncrease the value of the combned frm. COCLUSIO Our study contrbutes to the strand of M & A lterature on takeover performance and motvatons by provdng evdence of synergy motvatons as found n Dutch companes. We fnd a sgnfcant cumulatve average abnormal return of 4.62% over the event-wndow [-20, +20] for combned frms, whch suggests that takeovers create shareholder wealth (synergy motve). Fndng synergy motvatons s valuable as ths s not the case n most takeover studes. We analyze the determnants of the returns to the shareholders of the combned frm. We fnd emprcal evdence that nsttutonal shareholdngs, outsde block holdngs competton and the market-to-book value of the target frm have a sgnfcantly postve nfluence on the returns to the combned frm. Our study contrbutes to the strand of M & A lterature on ownershp structure and takeover performance by provdng new evdence that target ownershp structure nfluences performance. Competton between bddng frms sgnals to hgh-valuaton bdders the avalablty of hgh, non-frm-specfc synergstc gans. As competton provdes new nformaton to the market that hgh potental gans mght be avalable, t wll attract hgh-valuaton bdders to enter the contest. The emprcal results are consstent wth the fndngs of Stulz, Walkng and Song (990) and Eun, Kolodny and Scheraga (996). REFERECES Akhgbe, A., J. Madura, and C. Spencer (2004). Partal acqustons, corporate control, and performance, Appled Fnancal Economcs 4(2), Ben-Amar, W. and P. Andre (2006). Separaton of ownershp from control and acqurng frm performance: The case of famly ownershp n Canada, Journal of Busness Fnance & Accountng 33(3,4), Berkovtch, E., and M.P. arayanan (993). Motves for Takeovers: An Emprcal Investgaton, Journal of Fnancal and Quanttatve Analyss 28, Bradley, M., Desa, A. and Km, E.H. (988).Synergstc gans from corporate acqustons and ther dvson between the stockholders of target and acqurng frms, Journal of Fnancal Economcs 2, Bruner, R.F. (2002). Does M&A pay? A survey of evdence for the decson-maker, Journal of Appled Fnance: Theory, Practce, Educaton 2 (), Eun, C.S., R. Kolodny, C. Scheraga (996). Cross-border acqustons and shareholder wealth: Tests of synergy and nternalsaton hypotheses, Journal of Bankng & Fnance 20, Facco, M., J.J. McConnell, and D. Stoln (2006). Returns to acqurers of lsted and unlsted targets, Journal of Fnancal and Quanttatve Analyss 4(), Houston, J.F. and M.D. Ryngaert (994).The overall gans from large bank mergers, Journal of Bankng & Fnance 8, Jensen, M.C. (986). Agency costs of free cash flow, corporate fnance and takeovers, Amercan Economc Revew 76, Jensen, M.C., and R.S. Ruback (983).The Market for Corporate Control. The Scentfc Evdence, Journal of Fnancal Economcs, Kohers,. and T. Kohers (200). Takeovers of technology frms: Expectatons vs. realty, Fnancal Management 30(3), The Journal of Internatonal Management Studes, Volume 3, umber 2, August,

8 Morck, R., A. Shlefer, and R.W. Vshny (990). Do Manageral Objectves Drve Bad Acqustons?, Journal of Fnance 45, Morck, R., A. Shlefer, and R.W. Vshny (988). Management ownershp and market valuaton, Journal of Fnancal Economcs 20, Ramaswamy, K. P., and J.F. Waegelen (2003). Frm fnancal performance followng mergers, Revew of Quanttatve Fnance and Accountng 20 (2), Ravenscraft, D.J., and F.M. Scherer (989). The proftablty of mergers, Internatonal Journal of Industral Organzaton 7, 0-6. Ravenscraft, D.J., and F.M. Scherer (987). Lfe after takeover, Journal of Industral Economcs 36, Roll, R. (988).Emprcal Evdence on Takeover Actvty and Shareholder Wealth n J.C. Coffee (ed.), Knghts, Raders, and Targets, Oxford Unversty Press, Roll, R. (986).The Hubrs Hypothess of Corporate Takeovers, Journal of Busness 59, Romano, R. (992). A gude to Takeovers:Theory,Evdence, and Regulaton, Yale Journal on Regulaton 9,9-80. Roosenboom, P. and T. van der Goot (2005). The effect of ownershp and control on market valuaton: Evdence from ntal publc offerngs n the etherlands, Internatonal Revew of Fnancal Analyss 4 (), Shlefer, A., and R.W. Vshny (989). Management entrenchment. The case of manager-specfc nvestments, Journal of Fnancal Economcs 25, Stulz, R., R.A.Walkng, and M.H. Song (990). The dstrbuton of target ownershp and the dvson of gans n successful takeovers, Journal of Fnance 45, Varaya,.P., and K.R. Ferrs (987). Overpayng n Corporate Takeovers: The Wnner s Curse, Fnancal Analysts Journal 43 (May-June), Yuce, A. and A. g (2005). Effects of prvate and publc mergers, Canadan Journal of Admnstratve Scences 22 (2), The Journal of Internatonal Management Studes, Volume 3, umber 2, August, 2008