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Predicting Takeover Targets: Long-Run Evidence from the Netherlands

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Abstract

In the market for corporate control, the ownership and control of firms is traded. Mergers and acquisitions are major events for firms affecting the continuity and performance of firms and industries. This paper studies the determinants of takeovers in the Netherlands over a long period, 1961–2008. We conclude that until the mid-1980s targets had low leverage and high cash holdings. After this period, shareholder wealth maximization became a dominant goal, and we find that smaller and more profitable firms become targets for takeovers. In the most recent period takeover defences shield firms from takeover, while this effect is not found in the early period until the mid-1980s. We demonstrate shareholder rights have become important in determining takeover probabilities. The results illustrate the efficacy of rules and regulations and how they can effect the market for corporate control in the Netherlands.

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Notes

  1. Horizontal mergers, are mergers or consolidations that occur between firms that operate within the same industry and have similar operational characteristics.

  2. All relevant and continuous variables are winsorized at the 5% level (i.e. 2.5% on either end of the distribution).

  3. In robustness tests we also include decade fixed effects to capture macroeconomic fluctuations not captured by our M&A market sentiment variable. We find that all our results are robust.

  4. While perhaps uncommon in economics, we report the decomposition of the explained variance of each of our estimations (e.g. Colvin et al. 2015). This procedure allows us to to explore how much power each category of variables have in explaining corporate failures. Combined with our sub-period analysis, this allows us to demonstrate the variability of takeover determinants.

  5. The economic effects can be interpreted as follows. The average firm in our sample as a cash position of 4.67% (of total assets), doubling this cash position (keeping everything else equal), would increase the cash position by 4.67%. A one unit increase in would increase takeover probabilities by 730 basis points. Consequently a 4.67% increase results in a 34 basis point increase in takeover probabilities.

  6. The intuition here is, that takeover defenses only add little value in contributing to the overall explanatory power of our model in the first period.

  7. We compare coefficients between the different models using a Wald test.

  8. We test additional cut-off points for the presence of a blockholder and find no different effects. As such, we focus on the presence of a blockholder with controlling interest. We thank an anonymous referee for this suggestion.

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Acknowledgements

The data for this project were collected as part of the NWO project ‘The corporate governance of Dutch business in the 20th century—structural change and performance’ (NWO 360-52-080). We thank Chris Colvin, Marno Verbeek and an anonymous reviewer for providing comments and Mike Gruenwald, Teus Jan van Ekeren and Renate van der Meer for research assistance.

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Authors and Affiliations

  1. Monash University, Melbourne, Australia

    Abe De Jong

  2. Rotterdam School of Management, Erasmus University, Rotterdam, The Netherlands

    Abe De Jong

  3. Queen’s Management School, Queen’s University Belfast, Belfast, Northern Ireland, UK

    Philip T. Fliers

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Correspondence to Abe De Jong.

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De Jong, A., Fliers, P.T. Predicting Takeover Targets: Long-Run Evidence from the Netherlands. De Economist 168, 343–368 (2020). https://doi.org/10.1007/s10645-020-09364-z

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