The effects of hostile takeover bids on their targets : an empirical test of the corporate control hypothesis

Typescript (photocopy).The corporate control hypothesis predicts that an efficacious takeover market will facilitate the efficient utilization of societal resources and result in management decisions that serve to maximize shareholder wealth. The mechanism by which these things are accomplished is the corporate takeover. This implies that, for those firms that are the targets of corporate takeovers, one will observe, on the date on which the takeover bid is announced, a sharp increase in the price of the firms' common shares. The hypothesis further implies that, relative to their previous performance, the financial characteristics of the takeover targets will differ substantively as a result of changes in the management decision-making process. This study combines residual analysis and the analysis of published financial data: changes in the expectations of market participants regarding the future performance of the target firms are measured by the magnitude of the residual or "excess" returns on the targets' common shares, and the changes in the financial attributes of the target firms are reflected in intertemporal variations in financial ratios constructed from their financial statements. The empirical results obtained indicate that: (1) the short-term market reaction to the announcement of a takeover bid is generally positive, as reflected in the appearance of increased returns on the targets' common shares; but that, (2) over the longer-term, changes in the financial characteristics of the target firms are statistically indistinguishable from changes in the financial characteristics of similar, non-target firms. The latter result is not consistent with the predictions of the corporate control hypothesis. Consequently, two other possible explanations of the excess returns were investigated: (1) that they constitute transfers of wealth from the debtholders of the target firms; and (2) that they reflect information effects related to the type of the takeover bid announced. There is some evidence that both factors are related to the magnitude of the excess returns observed

Learning by doing: offering a university practicum in personal financial planning

Given the importance of interpersonal relationships in the financial planning process, it is surprising that relatively few registered financial planning programs explicitly provide students the opportunity to meet with real clients on a one-to-one basis. This paper describes the structure of a financial planning practicum developed for the purpose of providing such experience to future financial planners. It is hoped that this information will encourage others to consider offering experiential learning opportunities to those seeking positions in the financial service

The effects of hostile takeover bids on their targets : an empirical test of the corporate control hypothesis

Typescript (photocopy).The corporate control hypothesis predicts that an efficacious takeover market will facilitate the efficient utilization of societal resources and result in management decisions that serve to maximize shareholder wealth. The mechanism by which these things are accomplished is the corporate takeover. This implies that, for those firms that are the targets of corporate takeovers, one will observe, on the date on which the takeover bid is announced, a sharp increase in the price of the firms' common shares. The hypothesis further implies that, relative to their previous performance, the financial characteristics of the takeover targets will differ substantively as a result of changes in the management decision-making process. This study combines residual analysis and the analysis of published financial data: changes in the expectations of market participants regarding the future performance of the target firms are measured by the magnitude of the residual or "excess" returns on the targets' common shares, and the changes in the financial attributes of the target firms are reflected in intertemporal variations in financial ratios constructed from their financial statements. The empirical results obtained indicate that: (1) the short-term market reaction to the announcement of a takeover bid is generally positive, as reflected in the appearance of increased returns on the targets' common shares; but that, (2) over the longer-term, changes in the financial characteristics of the target firms are statistically indistinguishable from changes in the financial characteristics of similar, non-target firms. The latter result is not consistent with the predictions of the corporate control hypothesis. Consequently, two other possible explanations of the excess returns were investigated: (1) that they constitute transfers of wealth from the debtholders of the target firms; and (2) that they reflect information effects related to the type of the takeover bid announced. There is some evidence that both factors are related to the magnitude of the excess returns observed

Signalling, Insider Trading, And Post-Offering Performance: The Case Of Initial Public Offerings

Previous IPO studies have concluded that, on average, (1) the shares of firms going public are underpriced at the time of the offering, (2) prices adjust rapidly in the aftermarket, and (3) IPOs are generally poor performers over the longer-term. This study reevaluates the IPO pricing phenomenon utilizing more recent data and empirically tests the signaling models of Leland and Pyle (1977) and Gale and Stiglitz (1989), which imply that both first-day and aftermarket returns may be related to insiders transactions. Our results suggest that initial returns are inversely related to the proportion of the offering representing insiders share and that corporate insiders are, on average, net sellers in the year subsequent to the initial public offering. We also find that the greatest volume of post-offering insider sales occurs in those firms in which insiders are sold shares at the offering