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The effect of ownership concentration on deal probability in corporate takeovers : an empirical study of ownership concentration, with new evidence consistent with the free-rider proposition

Lien, Jonas Bru; Vugdalic, Suad
Master thesis
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URI
http://hdl.handle.net/11250/2473279
Date
2017
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  • Master Thesis [3258]
Abstract
The main purpose of this thesis is to empirically examine the relationship between

the target firm’s ownership concentration and deal probability, conditional on a bid

having been made. To examine this relationship in a satisfying manner, we apply

a traditional prediction model framework with binary outcomes: success or failure.

At the same time, we control for some of the most common and proven determinants

of deal probability, as well as for different type of owners in the target firm,

such as industrial and family owners. In addition, we examine whether there is an

interaction effect between bid premium and ownership concentration. With a final

sample of 1493 public-to-public takeover bids, covering six continents in the period

2008-2014, we find that an increase in ownership concentration has a positive and

significant effect on deal probability in takeovers. Furthermore, we also find that

bid premium is a more important determinant of deal probability for low levels of

target ownership concentration than for high levels. Apart from industrial owners,

ownership types in general are also found to have little impact on deal probability.

Our findings are consistent the Free Rider Proposition by Grossman and Hart (1980),

as our results show that transfer of control is harder when the target firm’s ownership

structure is diffuse. The results are also consistent with the notion that shareholders

must be offered a higher premium when concentration is low, in order to induce

them to sell their shares and not free-ride. Thus, we expand on the current takeover

prediction literature while making an empirical contribution to the field of M&A by

utilizing extensive ownership data in new ways.

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