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Munich Personal RePEc Archive

Takeovers, institutional investment and the persistence of profits

Cosh, Andy and Hughes, Alan and Lee, Kevin and Singh, Ajit (1996): Takeovers, institutional investment and the persistence of profits. Published in: Centre for Business Research Working Paper Series No. WP030 (March 1996)

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Abstract

This paper studies the impact of takeovers on the profitability of the participating companies and the influence of institutional investors on this process. It involves an original approach to assessing the profitability impact by modelling the dynamics of corporate profitability. It is shown that the standard counterfactual assumptions made in most merger effect studies are biased against finidng profit-enhancing merger effects where acquiring firms display above average profitabiltiy prior to the merger. On the other hand, acquisition is shown to reinforce the tendency amongst companies for their profitability to move towards industry norms over time.

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