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Cost Inefficiency, Size of Firms, and Takeovers

Authors: Frydman, Halina
Frydman, Roman
Trimbath, Susanne
Keywords: Corporate Finance and Governance;Mergers, Acquisitions;Econometric Methods;Models with Panel Data;Truncated and Censored Models
Issue Date: 2000
Series/Report no.: FIN-00-061
Abstract: This study, using the Cox proportional hazards model, finds that the risk of takeover rises with cost inefficiency. It also finds that a firm faces a significantly higher risk of takeover if its cost performance lags behind its industry benchmark. These findings, moreover, appear to be remarkably stable over the nearly two decades spanned by the sample. The effect of the variables measuring the risk-size relationship, however, indicate temporal changes. Lastly, the study presents evidence from fixed-effects models of ex post cost efficiency improvements that support the hypothesis that takeover targets are selected based on the potential for improvement.
Appears in Collections:Finance Working Papers

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