Toeholds and takeover probability: implications for investment strategies
Abstract
Purpose
The purpose of this paper is to propose various toehold indicators and analyse whether the models incorporating these indicators can be used to establish investment strategies.
Design/methodology/approach
Logistic regression is used to test toehold indicator significance.
Findings
The results reflect that the designed measures are positively correlated to the likelihood of launching a takeover, although the power of the models to predict out‐sample takeovers is moderate, between 60.71 percent and 71.59 percent. The indicators allow us to design strategies which offer positive abnormal returns. In particular, abnormal return over the Fama‐French factors is 0.5 percent.
Originality/value
Toeholds are used to initiate takeover processes. As previous studies have indicated, a toehold increases the likelihood of success in a tender offer. Nevertheless, the studies on takeover prediction do not include the toehold since it is a variable which is unobservable prior to the announcement of a takeover bid.
Keywords
Citation
Samuel Baixauli, J. and Fernández, M.O. (2009), "Toeholds and takeover probability: implications for investment strategies", Studies in Economics and Finance, Vol. 26 No. 2, pp. 69-86. https://doi.org/10.1108/10867370910963019
Publisher
:Emerald Group Publishing Limited
Copyright © 2009, Emerald Group Publishing Limited