Predicting UK Takeover Targets: Some Methodological Issues and an Empirical Study

Predicting UK Takeover Targets: Some Methodological Issues and an Empirical Study This paper examines the methodological issues of using accounting ratios to predict takeover targets. Certain improvements are suggested, notably the use of industry-relative ratios and the deterimination of an ex ante cut off point which maximizes returns. The empirical study suggests that industry-relative ratios are not an improvement upon industry-specific models and that, although the models perform better than chance, they do not perform sufficiently well as to earn excess returns. Unfortunately, the results are not sufficiently sensitive as to be significantly affected by the choice of cut off point. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Predicting UK Takeover Targets: Some Methodological Issues and an Empirical Study

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by 1999 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008378900054
Publisher site
See Article on Publisher Site

Abstract

This paper examines the methodological issues of using accounting ratios to predict takeover targets. Certain improvements are suggested, notably the use of industry-relative ratios and the deterimination of an ex ante cut off point which maximizes returns. The empirical study suggests that industry-relative ratios are not an improvement upon industry-specific models and that, although the models perform better than chance, they do not perform sufficiently well as to earn excess returns. Unfortunately, the results are not sufficiently sensitive as to be significantly affected by the choice of cut off point.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 15, 2004

References

  • Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy
    Altman, E. I.
  • The Analysis and Use of Financial Ratios: A Review Article
    Barnes, P.
  • The Relevance of Inflation Adjusted Accounting Data to the Prediction of Corporate Takeovers
    Bartley, J. W.; Boardman, C. M.
  • The Effectiveness of Incorporating Stability Measures in Company Failure Models
    Betts, J.; Belhoul, D.
  • Ratio Stability and Corporate Failure
    Dambolena, I.; Khoury, S.
  • Pitfalls in the Application of Discriminant Analysis in Business
    Eisenbeis, R. A.

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