Predicting mergers and acquisitions : a study of Tobin's Q.

• Main Authors: Chong, Hui Shan., Lim, Jian Liang., Tan, Keng Tiong.
• Other Authors: Angie Low An Chee
• Format: Final Year Project
• Language: English
• Published: 2009
• Subjects: DRNTU::Business::Finance::Mergers and acquisitions
• Online Access: http://hdl.handle.net/10356/18927
• Institution: Nanyang Technological University

This paper attempts to document the relations between takeover probability and a comprehensive set of takeover determinants, with an emphasis on Tobin’s Q. We find firms characterized by low Q ratios are more likely to be the targets of takeovers. This study makes use of a modified methodology that takes into account industry-wide levels in Q ratios. The results indicate that the industry-adjusted Q produces a more significant and accurate measure in determining takeovers targets. Analysis has also been done to examine whether takeovers motivated by low Q ratios are due to market misvaluation or the Q-theory of investments. We find insignificant support for the Q-theory of investments which implies that management inefficiencies have limited explanatory power for the takeover sample in this study.