Conditional Returns to Shareholders of Bidding Firms: An Australian Study

37 Pages Posted: 18 Aug 2013

Date Written: August 18, 2013

Abstract

This study examines the importance of the self-selection problem when evaluating returns to bidder firms around announcement events. Takeover announcements are not random because managers decide rationally whether to bid or not, this indicates announcements are timed; consequently, in the presence of sample selection problem, standard OLS estimates are biased. Using a conditional model the results indicate that after controlling for the self-selection bias effect, shareholders of bidder firms make normal returns. Results are robust and consistent with conventional economic theory. In sum failing to account for sample selection bias may lead to erroneous conclusions about a bidder’s true economic wealth effects around an announcement event.

Keywords: Bid offers, Sample selection bias, Announcement returns

JEL Classification: G30, G34, C51

Suggested Citation

Akhtar, Farida, Conditional Returns to Shareholders of Bidding Firms: An Australian Study (August 18, 2013). 26th Australasian Finance and Banking Conference 2013, Available at SSRN: https://ssrn.com/abstract=2311857 or http://dx.doi.org/10.2139/ssrn.2311857

Farida Akhtar (Contact Author)

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

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