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Journal of Financial and Quantitative Analysis Vol. 56 No. 1 2021

Less Popular but More Effective Toeholds in Corporate Takeovers

Yun Dai1,2,3,4,5,6; Sebastian Gryglewicz1,2,3,7,4,6; Han Smit1,2,3,4,8,6

1 Conference Board · 2 Sun Yat‐Sen University · 3 Lingnan University · 4 Tinbergen Institute · 5 Deutsch Amerikanisches Institut Saarland · 6 Erasmus University Rotterdam · 7 National Grid (United States) · 8 Advanced Inhalation Therapies (Israel)

open access

Abstract

Despite their claimed advantages, toehold strategies have rarely been adopted in recent corporate takeovers and do not seem to increase acquirer returns. Are toeholds ineffective and becoming obsolete? We show that this is not the case. We find that toeholds are preferred for executing difficult takeovers. After controlling for such endogeneity in toehold-based acquisitions, toeholds do increase returns to acquirers. Moreover, the performance of toehold strategies improves over time due to more selective and more effective acquisition of toeholds. We find that this time trend is in part explained by learning from past toehold acquisitions.

DOI
10.1017/s0022109019001029
Volume
56
Issue
1
Pages
283-312
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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