Agency costs in the market for corporate control: evidence from UK takeovers
Review of Accounting and Finance
ISSN: 1475-7702
Article publication date: 8 June 2021
Issue publication date: 29 July 2021
Abstract
Purpose
This paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015.
Design/methodology/approach
Using survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates.
Findings
This paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover.
Practical implications
Given the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy.
Originality/value
While the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.
Keywords
Acknowledgements
The authors are grateful for commentary and suggestions from Boulis Ibrahim, Andy Adams, Mustafa Caglayan, Robert Mochrie, Andrea Eross, Hao Li, Ahmed Salhin, Ryuta Sakemoto, Kim Cuong Ly, Anthony Kyiu, the Advisors to Heriot-Watt University’s Centre for Finance & Investment and participants at ScotDoc 2016.
Citation
Jones, E., Xu, B. and Kamp, K. (2020), "Agency costs in the market for corporate control: evidence from UK takeovers", Review of Accounting and Finance, Vol. 20 No. 1, pp. 23-52. https://doi.org/10.1108/RAF-04-2020-0083
Publisher
:Emerald Publishing Limited
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