Kuehn, Douglas (1972) Takeovers and the theory of the firm : an econometric analysis for the U.K., 1957-69. PhD thesis, University of Warwick.

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Abstract

There are three aims to this thesis. First, in chapter I, the record of takeover activity in the U.K. from 1957-69 using a census of U.K. public quoted companies is analysed. This involves an examination of the frequency of takeovers over time, the industrial pattern of take-overs, the characteristics of raiders, differences between the performance of acquired and surviving firms, the payment practices and the bid premium, the distinction between takeovers and mergers, unsuccessful takeover bids and defensive strategies, and finally the timing of the offer with respect to the acquired firm's accounting period. This will set the scene for the second aim of the thesis which is the development, in chapter II, of a theory of the causes of takeovers based on the valuation discrepancy hypothesis suggested by Robin Marris.as well as more directly in terms of the financial characteristics of the acquired firms whose impact should be felt via the stock market valuation of the firm.

In chapters III and IV these models of takeovers are tested at the industry level through the use of the linear probability function estimation technique. It was found that the valuation ratio, profits and growth emerged as significant influences On the probability of takeover in a majority of industries but that Size, retentions and liquidity, in general, failed to provide any important contribution to an explanation of the causes of takeover. Attempts to analyse the differences in the industry results in terms of industry characteristics proved unsuccessful. Of primary interest is the market valuation as an explanation of takeovers for it offers not only an explanation of takeovers based on the price of the acquired firm, but also it forms the basis of the operation of the security constraint in Marris's managerial model of firm behaviour. Although demonstrating the existence of the valuation constraint in the form envisaged by Marris, i argued that this provided only a necessary condition of his revision to the theory of the firm and did not provide a basis for choosing between one or other of the posited managerial objectives of the new theories of the firm or the neo-classical formulation of profit maximization.

In chapter V an alternative estimational technique is employed on aggregate data ignoring the industry classifications; that of profit analysis. The results for the market valuation and the financial variables of profits, growth and retentions offer greatly improved results over the linear probability function in terms of the proportion of firms taken over at various levels of the explanatory variables.
Aside from more fully exposing the nature of the takeover process and its role as a constraint on managerial discretion, little contribution can be made towards the choice of appropriate managerial objective.

The third and final aim is to relate the takeover process to the appropriate model of the theory of the firm which has not been possible in the earlier chapters. For this I turned to an analysis of the takeover raiders and attempt to derive mutually exclusive predictions for the raider's performance relative to their industry average performance for the two assumed objectives of growth maximization and profit maximization. Reasonably clear distinctions are drawn on the basis of profits, growth, retentions and valuation ratio and the sign test used to demonstrate that the performance of raiders is better explained by the assumption that they seek to maximize growth rather than profits.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Library of Congress Subject Headings (LCSH):	Consolidation and merger of corporations -- Great Britain -- Mathematical models, Consolidation and merger of corporations -- Great Britain -- History, Microeconomics
Official Date:	September 1972
Dates:	Date Event September 1972 Submitted
Institution:	University of Warwick
Theses Department:	Department of Economics
Thesis Type:	PhD
Publication Status:	Unpublished
Extent:	218 leaves
Language:	eng

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