Tobin's Q and the Gains from Takeovers.

Abstract

This paper analyzes the relation between takeover gains and the q rations of targets and bidders for a sample of 704 mergers and tender offers over the period 1972-87. Target, bidder, and total returns are larger when targets have low q ratios and bidders have high q ratios. The relation is strengthened after controlling for the characteristics of the offer and the contest. This evidence confirms the results of the work by L. Lang, R. Stulz, and R. A. Walkling (1989) and shows that their findings also hold for mergers and after controlling for other determinants of takeover gains. Copyright 1991 by American Finance Association.