Managerial Performance, Bid Premiums, and the Characteristics
of Takeover Targets

Chao Chen

and

Philippe Cornu

This paper tests the inefficient performance hypothesis and the pre-bid run-up premium hypothesis of hostile takeovers. The long-term and short-term performance and the characteristics of friendly and hostile takeovers are com-pared. We find no indications of poor target performance over the five years prior to the takeover announcement. However, there is evidence that hostile takeovers do perform a correction for target managerial failure. This paper also finds that the type of offer is strongly related to the general trend of the M&A market and the size, and industry of the target firm. Higher takeover premiums and cash offers are more often associated with hostile offers. Moreover, the odds for hostile offers to incur competition among bidders and to be unsuccessful are significantly higher than that for friendly offers.